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Were Hedge Funds Right About Constellation Brands, Inc. (STZ)?

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The latest 13F reporting period has come and gone, and Insider Monkey is again at the forefront when it comes to making use of this gold mine of data. We have processed the filings of the more than 873 world-class investment firms that we track and now have access to the collective wisdom contained in these filings, which are based on their June 30th holdings, data that is available nowhere else. Should you consider Constellation Brands, Inc. (NYSE:STZ) for your portfolio? We'll look to this invaluable collective wisdom for the answer.

Constellation Brands, Inc. (NYSE:STZ) was in 50 hedge funds' portfolios at the end of the second quarter of 2021. The all time high for this statistic is 71. STZ shareholders have witnessed a decrease in support from the world's most elite money managers in recent months. There were 58 hedge funds in our database with STZ positions at the end of the first quarter. Our calculations also showed that STZ isn't among the 30 most popular stocks among hedge funds (click for Q2 rankings).

To most stock holders, hedge funds are perceived as unimportant, old financial tools of the past. While there are greater than 8000 funds in operation at the moment, Our experts hone in on the upper echelon of this club, approximately 850 funds. These money managers handle the lion's share of the hedge fund industry's total asset base, and by paying attention to their inimitable stock picks, Insider Monkey has spotted numerous investment strategies that have historically defeated the broader indices. Insider Monkey's flagship short hedge fund strategy defeated the S&P 500 short ETFs by around 20 percentage points per year since its inception in March 2017. Also, our monthly newsletter's portfolio of long stock picks returned 185.4% since March 2017 (through August 2021) and beat the S&P 500 Index by more than 79 percentage points. You can download a sample issue of this newsletter on our website.

Jeffrey Gates of Gates Capital

At Insider Monkey, we scour multiple sources to uncover the next great investment idea. For example, billionaire John Paulson is loading up on the miners, so we are checking out stock pitches like this mining stock. We go through lists like the 10 best EV stocks to pick the next Tesla that will deliver a 10x return. Even though we recommend positions in only a tiny fraction of the companies we analyze, we check out as many stocks as we can. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. You can subscribe to our free daily newsletter on our homepage. Keeping this in mind let's go over the latest hedge fund action encompassing Constellation Brands, Inc. (NYSE:STZ).

Do Hedge Funds Think STZ Is A Good Stock To Buy Now?

At second quarter's end, a total of 50 of the hedge funds tracked by Insider Monkey were bullish on this stock, a change of -14% from one quarter earlier. On the other hand, there were a total of 53 hedge funds with a bullish position in STZ a year ago. With hedge funds' positions undergoing their usual ebb and flow, there exists a few notable hedge fund managers who were increasing their stakes considerably (or already accumulated large positions).

Among these funds, Arrowstreet Capital held the most valuable stake in Constellation Brands, Inc. (NYSE:STZ), which was worth $183.8 million at the end of the second quarter. On the second spot was Citadel Investment Group which amassed $170.2 million worth of shares. Gates Capital Management, D E Shaw, and Millennium 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 Franklin Street Capital allocated the biggest weight to Constellation Brands, Inc. (NYSE:STZ), around 5.56% of its 13F portfolio. Freshford Capital Management is also relatively very bullish on the stock, setting aside 5.47 percent of its 13F equity portfolio to STZ.

Due to the fact that Constellation Brands, Inc. (NYSE:STZ) has witnessed falling interest from hedge fund managers, it's safe to say that there was a specific group of funds that slashed their full holdings by the end of the second quarter. Intriguingly, Alexander Mitchell's Scopus Asset Management dumped the biggest investment of the 750 funds followed by Insider Monkey, worth close to $85.5 million in stock, and John Overdeck and David Siegel's Two Sigma Advisors was right behind this move, as the fund dropped about $57.4 million worth. These moves are interesting, as total hedge fund interest dropped by 8 funds by the end of the second quarter.

Let's go over hedge fund activity in other stocks - not necessarily in the same industry as Constellation Brands, Inc. (NYSE:STZ) but similarly valued. These stocks are T. Rowe Price Group, Inc. (NASDAQ:TROW), IHS Markit Ltd. (NYSE:INFO), Agilent Technologies Inc. (NYSE:A), The Bank of New York Mellon Corporation (NYSE:BK), Schlumberger Limited. (NYSE:SLB), TE Connectivity Ltd. (NYSE:TEL), and BCE Inc. (NYSE:BCE). This group of stocks' market values are similar to STZ's market value.

[table] Ticker, No of HFs with positions, Total Value of HF Positions (x1000), Change in HF Position TROW,24,407032,-2 INFO,61,5947551,7 A,39,3891487,-3 BK,52,4907372,3 SLB,41,1067022,-9 TEL,39,2134995,0 BCE,14,113288,4 Average,38.6,2638392,0 [/table]

View table here if you experience formatting issues.

As you can see these stocks had an average of 38.6 hedge funds with bullish positions and the average amount invested in these stocks was $2638 million. That figure was $1608 million in STZ's case. IHS Markit Ltd. (NYSE:INFO) is the most popular stock in this table. On the other hand BCE Inc. (NYSE:BCE) is the least popular one with only 14 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. Our overall hedge fund sentiment score for STZ is 56.4. Stocks with higher number of hedge fund positions relative to other stocks as well as relative to their historical range receive a higher sentiment score. 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 5 most popular stocks among hedge funds returned 95.8% in 2019 and 2020, and outperformed the S&P 500 ETF (SPY) by 40 percentage points. These stocks gained 29.6% in 2021 through November 5th and beat the market again by 3.1 percentage points. Unfortunately STZ wasn't nearly as popular as these 5 stocks and hedge funds that were betting on STZ were disappointed as the stock returned -4.1% since the end of June (through 11/5) and underperformed the market. If you are interested in investing in large cap stocks with huge upside potential, you should check out the top 5 most popular stocks among hedge funds as many of these stocks already outperformed the market since 2019.

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