According to a study conducted by the Boston Consulting Group, the consumer non-durables sector, also known as the fast-moving consumer goods industry, has generated strong shareholder value over the last few years. This value creation has been achieved through a mix of factors such as earnings growth, stronger margins and wise financial strategies. Given that the U.S. economy is still recovering, the labor market is approaching full strength and consumer confidence is rising, the consumer non-durables industry is expected to provide great buying opportunities for investors. The consumer non-durables industry as a whole has achieved an increase of roughly 0.87% throughout the last three months, while the S&P 500 is up 0.75% during the same period, which suggests that this industry hides excellent stock picks. By taking a closer look at the recent moves made by an immense pool of the top hedge funds, we identified the top five non-durables stocks that might represent good buying opportunities.
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Let’s first take a step back and analyze how tracking hedge funds can help an everyday investor. Through our research we discovered that a portfolio of the 15 most popular small-cap picks of hedge funds beat the S&P 500 Total Return Index by nearly a percentage point per month on average between 1999 and 2012. On the other hand the most popular large-cap picks of hedge funds underperformed the same index by seven basis point per month during the same period. In forward tests since August 2012 these top small-cap stocks beat the market by an impressive 84 percentage points, returning over 144% (read the details here). Hence a retail investor needs to isolate himself from the herd and take advantage of the prevalent arbitrage opportunities in the market by concentrating on small-cap stocks.
Kraft Foods Group Inc. (NASDAQ:KRFT) is the most solid pick on our list that may increase your portfolio’s performance in the near future. The number of hedge funds with long positions in this stock increased to 70 from 36, achieving a substantial increase of more than 94%. At the same time, the value of all hedge funds’ holdings in Kraft was boosted by 341% over the last reporting quarter, increasing to $3.28 billion from $743.82 million. Kraft’s shares have experienced an upsurge of 35% since the beginning of 2015 as the food producer was acquired by Heinz, with backing from Warren Buffett and 3G Capital. Kraft Foods Group Inc. (NASDAQ:KRFT) generated earnings of $0.86 during the quarter, beating the Zacks Consensus Estimate by 6.2%. At the same time, some of the hedge funds that remain bullish on Kraft include David Greenspan’s Slate Path Capital and Nehal Chopra’s Ratan Capital Group.
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The most popular non-durable stock when measured by the value of shares held by hedge funds is the Coca-Cola Company (NYSE:KO). A total of 65 hedge funds had Coca-Cola in their portfolios at the end of the last quarter, an increase from a slightly lower total of 59. Nevertheless, the value of the total investment in the global leader in the beverage industry fell by 3%, decreasing to $21.71 billion from $22.45 billion. Despite the fact that Coca-Cola Company (NYSE:KO)’s shares have declined by 2% since the beginning of the year, the stock can achieve a turnaround as the company makes another move towards re-franchising. Coca-Cola has decided to franchise its bottling operations to a few independent bottlers, which will most probably allow the company to enhance its operating margins and cut down on its capital expenditures. Some of the hedge funds that believe in Coca-Cola Company (NYSE:KO)’s strong future financial performance include Warren Buffett’s Berkshire Hathaway, which owns a sizable stake of 400 million shares, and Donald Yacktman’s Yacktman Asset Management.
The third-most popular stock when looking at the number of hedge funds holding a position in the company is Mondelez International Inc. (NASDAQ:MDLZ). There are 65 hedge funds that own equity holdings in this company, the number increasing from 63 at the end of 2014. However, the value of the overall holdings fell by more than 9%, to $6.11 billion from $6.76 billion. Although Mondelez International Inc. (NASDAQ:MDLZ)’s shares have risen by nearly 11% in 2015, the stock might move even higher as the European Union has recently approved the joint venture proposal of Mondelez and DE Master Blenders. The joint venture, called Jacobs Douwe Egberts, will launch a coffee business worth roughly $7 billion. One of the funds that increased its equity holdings in Mondelez International Inc. (NASDAQ:MDLZ) includes Nelson Peltz’s Trian Partners.
Molson Coors Brewing Company (NYSE:TAP) is a consumer non-durable stock owned by 62 hedge funds at the end of the most recent quarter. The number of hedge funds having positions in the company increased by 8 to 62, while the value of the total investments increased by more than 53% to $2.07 billion. A little while ago, Molson announced its better-than-expected financial results in spite of the foreign currency headwinds. While shares of Molson Coors Brewing Company (NYSE:TAP) decreased by 0.38% since the beginning of the current year, it seems that the company is in good financial health as it recently announced a quarterly dividend of $0.41 per share, providing a yield of 2.21%. Kenneth Mario Garschina’s Mason Capital Management is one of the hedge funds that remain bullish on Molson Coors Brewing Company (NYSE:TAP) as the fund increased its holding in the company during the first quarter.
Constellation Brands Inc. (NYSE:STZ) is another consumer non-durable company that has been very popular with hedge funds. The number of funds having positions in the drinks company increased to 62 from 61, while the value of the equity holdings in Constellation Brands Inc. rose to $4.34 billion from $4.24 billion. Even though Constellation Brands’ shares have increased by 20% in 2015, it is expected that there is still more room to rise for this company as the summer selling season is approaching. Constellation Brands Inc. (NYSE:STZ) is the owner of Crown Imports LLC, which produces the beer brand Corona Extra, which is the best-selling imported beer in the U.S. Therefore, the crucial summer selling season will reveal Constellation’s true financial performance. In the meantime, Michael Lowenstein’s Kensico Capital remains bullish on Constellation Brands Inc. (NYSE:STZ), owning one of the largest equity stakes in this company.
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