Amid an Increase in Consumer Spending, This Is How Hedge Fund’s Favorite Consumer Stocks Performed in Q2

Consumer spending in the United States this year has largely been immune to the economic turmoil being faced by other regions of the world. While some of the largest global economies like China and the United Kingdom are grappling with uncertainty, leading consumers in those countries to curb down on spending, consumer  spending in the United States has been on the rise due to improvements in the job market and lower energy costs.

In April, personal spending in the United States rose by 1.1% month-over-month, the largest increase witnessed in nearly seven years, followed by a 0.4% increase in the month of May. This increase in consumer spending has translated well for consumer stocks, some of which are currently trading close to their all-time highs. In this post, we will take a look at the five most popular consumer stocks at the end of first quarter among the hedge funds that we track and will look into how those stocks performed in the second quarter of 2016.

At Insider Monkey, we track around 765 hedge funds and institutional investors. Through extensive backtests, we have determined that imitating some of the stocks that these investors are collectively bullish on can help retail investors generate double digits of alpha per year. The key is to focus on the small-cap picks of these funds, which are usually less followed by the broader market and allow for larger price inefficiencies (see more details).

#5. The Coca-Cola Co (NYSE:KO)

 – Hedge Funds with Long Positions (as of March 31): 62

 – Aggregate Value of Hedge Funds’ Holdings (as of March 31): $22.81 Billion

During the first quarter, the number of hedge funds in our system that were long The Coca-Cola Co (NYSE:KO) increased by 11, with the aggregate value of their holdings in the stock jumping by $2.52 billion. Shares of The Coca-Cola Co (NYSE:KO) started the second quarter on a strong note, reaching their lifetime high of $47.13 in early-April. However, owing to a heavy decline following the release of the company’s first quarter financial results, Coca-Cola’s shares ended the second quarter down by 2.28%. Several analysts who track Coca-Cola feel that the stock will find it hard to gain much ground going forward as the company is struggling to grow its top-line amid a global decline in soda consumption and the stock already trading at a significant premium to its historical P/E ratio. On June 29, analysts at Goldman Sachs reiterated their ‘Neutral’ rating on the stock while lowering their price target on it to $45 from $47. Funds that reduced their stake in the company during the first quarter included Donald Yacktman‘s Yacktman Asset Management, which cut its holding by 9% to 18.3 million shares.

#4. Mondelez International Inc (NASDAQ:MDLZ)

 – Hedge Funds with Long Positions (as of March 31): 63

 – Aggregate Value of Hedge Funds’ Holdings (as of March 31): $5.66 Billion

Mondelez International Inc (NASDAQ:MDLZ)’s stock ended the second quarter up by 13.43%, with some of those gains coming in on the last day of the quarter after news broke that the company had made a $107 per share bid for rival Hershey (NYSE:HSY). Though Hershey (NYSE:HSY) announced on the same day that its Board of Directors had unanimously rejected the bid, shares of both companies are still holding onto the gains they made on June 30, as market participants anticipate Mondelez making a higher bid for the company. Mondelez has been working hard on increasing its operating margins for the past few quarters, the results of which were visible during its first quarter earnings release on April 27, when it revealed that its adjusted operating income margin grew by 2.40 percentage points year-over-year to 15.1%. In the January-to-March period, the ownership of Mondelez International Inc (NASDAQ:MDLZ) among the funds in our database increased by six, though the aggregate value of their holdings in the stock fell by $1 billion. Bill Ackman‘s Pershing Square reduced its stake in the company by 48% to just under 23 million shares during the quarter.

The second-quarter performance of the three most popular consumer stocks is studied on the next page.

#3. Nike Inc (NYSE:NKE)

 – Hedge Funds with Long Positions (as of March 31): 64

 – Aggregate Value of Hedge Funds’ Holdings (as of March 31): $3.65 Billion

Moving on, shares of Nike Inc (NYSE:NKE) saw a gradual decline during the second quarter, losing over 10% of their value during the period. The company reported its fourth quarter of fiscal year 2016 results at the end of June, declaring EPS of $0.49 on revenue of $8.28 billion, narrowly topping analysts’ estimates of EPS of $0.48 on revenue of $8.24 billion. Analysts continue to remain bullish on the company, citing the stellar organic growth it has displayed over the years and the huge investment it’s making in e-commerce, which they believe will reap rich dividends in the future. On July 5, analysts at Nomura reiterated their ‘Buy’ rating on the stock and set a price target of $64 on it, which represents potential upside of 15.56%. Stephen Mandel‘s Lone Pine Capital increased its stake in Nike Inc (NYSE:NKE) by 5% to almost 12 million shares during the first quarter.

#2. PepsiCo, Inc. (NYSE:PEP)

 – Hedge Funds with Long Positions (as of March 31): 65

 – Aggregate Value of Hedge Funds’ Holdings (as of March 31): $6 Billion

The aggregate ownership of PepsiCo, Inc. (NYSE:PEP) among the hedge funds that we track rose by seven during the first quarter, though the aggregate value of their Pepsi holdings declined by $1.7 billion. During the second quarter, shares of the beverage giant remained largely range-bound, ending the quarter up by 3.38% and very close to their lifetime high of $106.98. In the past few quarters, several states and other jurisdictions have contemplated imposing a soda tax on the sale of aerated beverages, which has been strongly opposed by the beverage industry. Although analysts believe that these taxes will be detrimental for companies like PepsiCo, Inc. (NYSE:PEP) and The Coca-Cola Co, shares of these companies haven’t been impacted much by the possibility. Pepsi is expected to report its second quarter results by the end of this week and the consensus among analysts is for it to report EPS of $1.30 on revenue of $15.37 billion. For the same quarter of last year, Pepsi reported EPS of $1.32 on revenue of $15.92 billion.

#1. Constellation Brands, Inc. (NYSE:STZ)

 – Hedge Funds with Long Positions (as of March 31): 71

 – Aggregate Value of Hedge Funds’ Holdings (as of March 31): $5.73 Billion

Constellation Brands, Inc. (NYSE:STZ) is another consumer stock that is currently trading very close to its lifetime high. Owing to the rally they enjoyed in anticipation of the company’s first quarter of fiscal year 2017 earnings, which were released on June 30, shares of Constellation Brands, Inc. (NYSE:STZ) ended the second quarter up by 9.47%. In April, Morgan Stanley released a list of 30 stocks for investors to buy and hold until 2019, which included Constellation Brands. For its fiscal first quarter, the alcoholic beverages company reported EPS of $1.57 on revenue of $1.87 billion, exhibiting strong growth from the EPS of $1.26 and revenue of $1.63 billion that it delivered for the same quarter of fiscal year 2016.

Following the latest earnings release, several analysts reiterated their ratings and price targets on the stock. Constellation Brands’ stock currently sports an average rating of ‘Overweight’ and an average price target of $175.65 from the 20 leading analysts and research firms on Wall Street who track it. During the first quarter, the number of hedge funds in our system long the stock increased by four, while the aggregate value of their Constellation Brands holdings rose by $75 million. Billionaire Dan Loeb‘s Third Point was one of the hedge funds that increased its stake in the company during the quarter, by 11% to 1.76 million shares.

Disclosure: None