Were Hedge Funds Right About Constellation Brands (STZ)?

We hate to say this but, we told you so. On February 27th we published an article with the title Recession is Imminent: We Need A Travel Ban NOW and predicted a US recession when the S&P 500 Index was trading at the 3150 level. We also told you to short the market and buy long-term Treasury bonds. Our article also called for a total international travel ban. While we were warning you, President Trump minimized the threat and failed to act promptly. As a result of his inaction, we will now experience a deeper recession (see why hell is coming).

In these volatile markets we scrutinize hedge fund filings to get a reading on which direction each stock might be going. Keeping this in mind let’s see whether Constellation Brands, Inc. (NYSE:STZ) represents a good buying opportunity at the moment. Let’s quickly check the hedge fund interest towards the company. Hedge fund firms constantly search out bright intellectuals and highly-experienced employees and throw away millions of dollars on satellite photos and other research activities, so it is no wonder why they tend to generate millions in profits each year. It is also true that some hedge fund players fail inconceivably on some occasions, but net net their stock picks have been generating superior risk-adjusted returns on average over the years.

Is Constellation Brands, Inc. (NYSE:STZ) a good stock to buy now? The best stock pickers are in an optimistic mood. The number of bullish hedge fund positions inched up by 6 recently. Our calculations also showed that STZ isn’t among the 30 most popular stocks among hedge funds (click for Q4 rankings and see the video at the end of this article for Q3 rankings). STZ was in 52 hedge funds’ portfolios at the end of the fourth quarter of 2019. There were 46 hedge funds in our database with STZ holdings at the end of the previous quarter.

If you’d ask most traders, hedge funds are seen as slow, old financial tools of years past. While there are more than 8000 funds in operation at present, We choose to focus on the top tier of this club, around 850 funds. These investment experts preside over most of the hedge fund industry’s total capital, and by monitoring their highest performing equity investments, Insider Monkey has unearthed a number of investment strategies that have historically outpaced the S&P 500 index. Insider Monkey’s flagship short hedge fund strategy beat the S&P 500 short ETFs by around 20 percentage points a year since its inception in March 2017. Our portfolio of short stocks lost 35.3% since February 2017 (through March 3rd) even though the market was up more than 35% during the same period. We just shared a list of 7 short targets in our latest quarterly update .

Michael Lowenstein Kensico Capital

Michael Lowenstein of Kensico Capital

With all of this in mind let’s take a glance at the latest hedge fund action regarding Constellation Brands, Inc. (NYSE:STZ).

What does smart money think about Constellation Brands, Inc. (NYSE:STZ)?

At Q4’s end, a total of 52 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of 13% from the previous quarter. On the other hand, there were a total of 62 hedge funds with a bullish position in STZ a year ago. So, let’s examine which hedge funds were among the top holders of the stock and which hedge funds were making big moves.

More specifically, Kensico Capital was the largest shareholder of Constellation Brands, Inc. (NYSE:STZ), with a stake worth $799 million reported as of the end of September. Trailing Kensico Capital was Citadel Investment Group, which amassed a stake valued at $352.1 million. Point72 Asset Management, Balyasny Asset Management, and Two Creeks Capital Management were also very fond of the stock, becoming one of the largest hedge fund holders of the company. In terms of the portfolio weights assigned to each position Kensico Capital allocated the biggest weight to Constellation Brands, Inc. (NYSE:STZ), around 16.67% of its 13F portfolio. BlueDrive Global Investors is also relatively very bullish on the stock, earmarking 8.63 percent of its 13F equity portfolio to STZ.

Consequently, key money managers have been driving this bullishness. Point72 Asset Management, managed by Steve Cohen, initiated the most outsized position in Constellation Brands, Inc. (NYSE:STZ). Point72 Asset Management had $120.8 million invested in the company at the end of the quarter. Jack Woodruff’s Candlestick Capital Management also initiated a $34.2 million position during the quarter. The following funds were also among the new STZ investors: Brian Scudieri’s Kehrs Ridge Capital, David Steinberg and Eric Udoff’s Marlowe Partners, and Joel Greenblatt’s Gotham Asset Management.

Let’s check out hedge fund activity in other stocks – not necessarily in the same industry as Constellation Brands, Inc. (NYSE:STZ) but similarly valued. We will take a look at Telefonica S.A. (NYSE:TEF), Thomson Reuters Corporation (NYSE:TRI), Newmont Corp (NYSE:NEM), and NXP Semiconductors NV (NASDAQ:NXPI). All of these stocks’ market caps resemble STZ’s market cap.

Ticker No of HFs with positions Total Value of HF Positions (x1000) Change in HF Position
TEF 9 36499 4
TRI 21 343733 0
NEM 34 990094 -10
NXPI 80 3769335 18
Average 36 1284915 3

View table here if you experience formatting issues.

As you can see these stocks had an average of 36 hedge funds with bullish positions and the average amount invested in these stocks was $1285 million. That figure was $1980 million in STZ’s case. NXP Semiconductors NV (NASDAQ:NXPI) is the most popular stock in this table. On the other hand Telefonica S.A. (NYSE:TEF) is the least popular one with only 9 bullish hedge fund positions. Constellation Brands, Inc. (NYSE:STZ) is not the most popular stock in this group but hedge fund interest is still above average. This is a slightly positive signal but we’d rather spend our time researching stocks that hedge funds are piling on. Our calculations showed that top 10 most popular stocks among hedge funds returned 41.4% in 2019 and outperformed the S&P 500 ETF (SPY) by 10.1 percentage points. These stocks gained 1.0% in 2020 through May 1st but beat the market by 12.9 percentage points. Unfortunately STZ wasn’t nearly as popular as these 10 stocks and hedge funds that were betting on STZ were disappointed as the stock returned -14.5% during the same time period and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 10 most popular stocks among hedge funds as many of these stocks already outperformed the market so far this year.
5 Most Popular Stocks Among Hedge Funds
Video: Click the image to watch our video about the top 5 most popular hedge fund stocks.

Disclosure: None. This article was originally published at Insider Monkey.