Nike, Pepsi, Mondelez: Billionaires Are Counting On These Consumer Stocks To Woo Customers in Q3

Hedge funds have gotten a good deal of flak for their underperformance this year, in an environment that was expected to be more conducive to positive returns for long/short equity investors than the bull market following the financial crisis. However, hedge funds have again collectively underperformed the market this year, with their average returns of 3% coming in well below the 6.85% year-to-date return posted by the S&P 500.

However, things may be looking up for the smart money community. According to a Goldman Sachs study which analyzed the holdings of 826 hedge funds, their 50 favorite stocks (the 50 stocks that appeared the most often among those fund’s top-ten holdings) have greatly outperformed the S&P 500 since June, besting the index by nearly 500 basis points. That’s a positive step considering those same picks had underperformed the S&P over the previous 11-month-period.

With that in mind, we’ll use our own data culled from the 62 hedge funds in our database that are managed or were founded by billionaires, to see what that group of wealthy investors thought about the prospects of consumer stocks heading into the third quarter. We’ll analyze their top-five picks in the sector, which are PepsiCo, Inc. (NYSE:PEP), Constellation Brands, Inc. (NYSE:STZ), Mondelez International Inc (NASDAQ:MDLZ), Nike Inc (NYSE:NKE), and Activision Blizzard, Inc. (NASDAQ:ATVI), in this article.

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).

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#5 Activision Blizzard, Inc. (NASDAQ:ATVI)

– Number of Billionaires With Long Positions (as of June 30): 12
– Aggregate Value of Billionaires’ Holdings (as of June 30): $1.65 billion

Video game developer Activision Blizzard kicks off our list, with 12 of the billionaire money managers in our system being long the stock on June 30. While that figure actually ties the next three companies on the list, Activision had the smallest amount of money invested in it among those billionaires, at $1.65 billion. Activision was an extremely popular stock among billionaires during the second quarter, as a net total of five billionaires added the stock to their portfolios during the quarter and the aggregate amount invested in the stock by them nearly quadrupled. Among the new billionaire investors in Activision during the quarter were Dan Loeb (Third Point), Ken Fisher (Fisher Asset Management), and Jim Simons (Renaissance Technologies).

Gaming stocks in general have been performing well, with all three major U.S. gaming stocks hitting 52-week highs in mid-July. However, Activision Blizzard, Inc. (NASDAQ:ATVI) has since given up some of those gains, getting hit particularly hard on August 16 after an LP associated with CEO Bobby Kotick sold off 17.5 million shares. All that may have done is create a great entry point for buyers, as the company’s gaming properties are red-hot, with Overwatch ranking as one of the most popular e-sports games in the world right now. That pushed Activision to a big earnings beat in its second quarter results, as its $0.54 per share in adjusted earnings crushed estimates by $0.12. Nonetheless, shares are up by just 3% in 2016 and appear to offer good value, which is likely why so many billionaires were snapping them up.

#4 PepsiCo, Inc. (NYSE:PEP)

– Number of Billionaires With Long Positions (as of June 30): 12
– Aggregate Value of Billionaires’ Holdings (as of June 30): $1.87 billion

Pepsi was also in the portfolios of 12 of the billionaires in our database on June 30, up from 11 a quarter earlier. Ken Fisher hiked his Pepsi stake by 2% to 5.43 million shares, while Jim Simons’ quant fund cut its Pepsi holding by 59% to 1.54 million shares. Ken Griffin (Citadel Investment) also slashed his Pepsi position during the quarter, by 87% to 308,774 shares.

PepsiCo, Inc. (NYSE:PEP) was reportedly interested in buying WhiteWave Foods Co (NYSE:WWAV) earlier this year, as it continues to try and diversify from its core soda business. However, Pepsi balked at the price tag and WhiteWave was purchased by Danone shortly after for $12.5 billion. Pepsi is trading at a reasonable forward P/E of about 22-times expected earnings, slightly beneath rival The Coca-Cola Co (NYSE:KO)’s figure of about 23-times. Analysts are also predicting stronger growth for Pepsi in 2016 than for its rival, as Coca-Cola battles currency headwinds that aren’t as impactful to Pepsi. Coca-Cola did not make this list, as a net total of three billionaires left the stock in the second quarter, leaving ten billionaires with long positions in it.

We’ll check out billionaires’ three favorite consumer stocks for the summer quarter on the next page.

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

– Number of Billionaires With Long Positions (as of June 30): 12
– Aggregate Value of Billionaires’ Holdings (as of June 30): $2.09 billion

Alcohol producer Constellation Brands also checks in with 12 billionaires long its shares as of June 30, up from ten a quarter earlier. Jim Simons’ RenTech opened a new position in the stock consisting of 448,600 shares, while Dan Loeb’s Third Point raised its stake by 14% to an even 2.00 million shares. On the other hand, Ray Dalio (Bridgewater Associates) slashed its Constellation Brands holding by 93% to just 2,213 shares.

Constellation Brands, Inc. (NYSE:STZ) was a top performing consumer stock in the second quarter, gaining over 9%. Part of that quarterly surge came on the very last day of June, as the company reported strong results for its first quarter of fiscal year 2017. Adjusted EPS of $1.54 beat estimates by $0.02 and jumped by 22% year-over-year, the seventh-straight quarter that the company beat earnings estimates. Sales were also strong, beating estimates for the third-straight quarter, aided by a 9% boost in wine sales, which was spurred by two acquisitions during the previous year.

#2 Nike Inc (NYSE:NKE)

– Number of Billionaires With Long Positions (as of June 30): 12
– Aggregate Value of Billionaires’ Holdings (as of June 30): $2.17 billion

The athletic apparel and sports equipment company ranks second, with 12 billionaires being shareholders of its stock on June 30, owning $2.17 billion worth of its shares. That represented a big jump from just seven billionaires owning its shares on March 31. Louis Bacon (Moore Global Investments) and Mr. Simons’ RenTech were among the billionaire investors taking new positions in Nike during the second quarter.

After an underwhelming start, Nike Inc (NYSE:NKE) shares are starting to experience their expected kick from exposure during the Olympic Games in Rio, with shares now up by 7.5% since the Rio Olympics started. Nike’s stock experienced rises of between 4% and 19% during the six Summer Games between 1984 and 2004, though the past two Summer Olympics did not produce the desired share performance, with losses of about 3%. Over 70% of the Track-and-Field events at this year’s Olympics have been won by athletes sporting Nike gear.

#1 Mondelez International Inc (NASDAQ:MDLZ)

– Number of Billionaires With Long Positions (as of June 30): 16
– Aggregate Value of Billionaires’ Holdings (as of June 30): $4.55 billion

Mondelez easily claims the top spot, as 16 billionaires owned its shares on June 30, a full 33% more than the runner-ups. Billionaire Bill Ackman (Pershing Square) held on to his 22.94 million shares throughout the quarter, while Warren Buffett (Berkshire Hathaway) did the same with his 578,000-share holding. David Harding (Winton Capital Management) cut his Mondelez stake by 37% to 1.37 million shares.

Mondelez International Inc (NASDAQ:MDLZ) announced on Thursday that will invest $100 million in China over the next three years as it looks to tap into that country’s growing chocolate market. The announcement comes shortly after the company’s $23 billion bid for Hershey Co (NYSE:HSY) was rejected. While Hershey does have a presence in China, it’s been struggling there of late, with its first quarter sales in the country sliding by 35% year-over-year. Mondelez is hopeful that its Milka brand will have better results in the country, with it slated to begin selling locally-produced product from that brand there in September.

Disclosure: None