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Here is What Hedge Funds Think About Constellation Brands, Inc. (STZ)

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Asma UL Husna
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Does Constellation Brands, Inc. (NYSE:STZ) represent 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 superb investment today? Investors who are in the know are in an optimistic mood. The number of long hedge fund positions advanced by 3 in recent months. Our calculations also showed that STZ isn't among the 30 most popular stocks among hedge funds.

So, why do we pay attention to hedge fund sentiment before making any investment decisions? Our research has shown that hedge funds' small-cap stock picks managed to beat the market by double digits annually between 1999 and 2016, but the margin of outperformance has been declining in recent years. Nevertheless, we were still able to identify in advance a select group of hedge fund holdings that outperformed the Russell 2000 ETFs by 40 percentage points since May 2014 (see the details here). We were also able to identify in advance a select group of hedge fund holdings that underperformed the market by 10 percentage points annually between 2006 and 2017. Interestingly the margin of underperformance of these stocks has been increasing in recent years. Investors who are long the market and short these stocks would have returned more than 27% annually between 2015 and 2017. We have been tracking and sharing the list of these stocks since February 2017 in our quarterly newsletter. Even if you aren't comfortable with shorting stocks, you should at least avoid initiating long positions in stocks that are in our short portfolio.

[caption id="attachment_735641" align="aligncenter" width="473"]

Michael Lowenstein Kensico Capital
Michael Lowenstein Kensico Capital

Michael Lowenstein of Kensico Capital[/caption]

Unlike the largest US hedge funds that are convinced Dow will soar past 40,000 or the world's most bearish hedge fund that's more convinced than ever that a crash is coming, our long-short investment strategy doesn't rely on bull or bear markets to deliver double digit returns. We only rely on the best performing hedge funds' buy/sell signals. We're going to check out the recent hedge fund action surrounding Constellation Brands, Inc. (NYSE:STZ).

What have hedge funds been doing with Constellation Brands, Inc. (NYSE:STZ)?

At the end of the third quarter, a total of 41 of the hedge funds tracked by Insider Monkey were long this stock, a change of 8% from one quarter earlier. Below, you can check out the change in hedge fund sentiment towards STZ over the last 17 quarters. With hedge funds' positions undergoing their usual ebb and flow, there exists a few key hedge fund managers who were increasing their holdings substantially (or already accumulated large positions).

STZ_nov2019
STZ_nov2019

More specifically, Kensico Capital was the largest shareholder of Constellation Brands, Inc. (NYSE:STZ), with a stake worth $872.8 million reported as of the end of September. Trailing Kensico Capital was Citadel Investment Group, which amassed a stake valued at $191.6 million. Renaissance Technologies, Two Creeks Capital Management, and Diamond Hill Capital 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 16.69% of its portfolio. BlueDrive Global Investors is also relatively very bullish on the stock, earmarking 11.44 percent of its 13F equity portfolio to STZ.

As industrywide interest jumped, some big names have jumped into Constellation Brands, Inc. (NYSE:STZ) headfirst. Balyasny Asset Management, managed by Dmitry Balyasny, established the biggest position in Constellation Brands, Inc. (NYSE:STZ). Balyasny Asset Management had $42.8 million invested in the company at the end of the quarter. Steve Cohen's Point72 Asset Management also made a $15.3 million investment in the stock during the quarter. The other funds with new positions in the stock are Elise Di Vincenzo Crumbine's Stormborn Capital Management, Benjamin A. Smith's Laurion Capital Management, and Minhua Zhang's Weld Capital Management.

Let's now review hedge fund activity in other stocks - not necessarily in the same industry as Constellation Brands, Inc. (NYSE:STZ) but similarly valued. These stocks are Telefonica S.A. (NYSE:TEF), ICICI Bank Limited (NYSE:IBN), Mizuho Financial Group Inc. (NYSE:MFG), and Workday Inc (NASDAQ:WDAY). All of these stocks' market caps match STZ's market cap.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TEF,5,34830,-2 IBN,26,849426,-3 MFG,4,14381,-2 WDAY,39,1240146,-2 Average,18.5,534696,-2.25 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 18.5 hedge funds with bullish positions and the average amount invested in these stocks was $535 million. That figure was $1671 million in STZ's case. Workday Inc (NASDAQ:WDAY) is the most popular stock in this table. On the other hand Mizuho Financial Group Inc. (NYSE:MFG) is the least popular one with only 4 bullish hedge fund positions. Compared to these stocks Constellation Brands, Inc. (NYSE:STZ) is more popular among hedge funds. Our calculations showed that top 20 most popular stocks among hedge funds returned 34.7% in 2019 through November 22nd and outperformed the S&P 500 ETF (SPY) by 8.5 percentage points. Unfortunately STZ wasn't nearly as popular as these 20 stocks and hedge funds that were betting on STZ were disappointed as the stock returned -12.2% during the fourth quarter (through 11/22) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 20 most popular stocks among hedge funds as 70 percent of these stocks already outperformed the market in Q4.

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

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