As of the end of 2024, Warren Buffett’s Berkshire Hathaway was sitting on a record level of cash, $334 billion to be precise.
And in the preceding months, he’d also been a net seller of stocks, cashing in parts of his Apple (AAPL) position, his S&P 500 ETFs, and more.
That made it particularly notable when a 13F filing revealed that he had opened a new billion-dollar position in alcoholic beverage company Constellation Brand (STZ).
Not only was it a large stake (5.6 million shares), but it was also the only newly opened position in the portfolio.
Buffett is the most well-respected investor on Wall Street, and inarguably “smart money,” so that’s certainly a sign that we should be following suit, right?
Not necessarily.
You see, another “smart money” indicator is flashing sell signals.
Insiders.
In the last 12 months, there have been a total of 42 insider transactions in STZ, only 10 of which were buys.
The net result of those trades has been the sale of 569,000 shares of STZ, or $106 million at the current prices, with the largest single transaction being a $29 million sale by Robert Sands, a director at the company.
So, as retail investors, where should we land on this transaction? Is it a buy-low signal because of Buffett, or is it a stay-away signal because of the insider selling?
Early results are very much in favor of the insiders, as Berkshire’s average price is 239.50, well ahead of the last trade at 187, which means Buffett’s stake has lost 21.9% since it was initiated.
At the same time, it cannot be overstated how important it is to avoid putting too much emphasis on insider selling.
Highly paid executives frequently receive stock and options as part of their total compensation, and selling by those executives is often just a way for them to convert that equity stake into cash.
There’s no way to know why Sands divested a $29 million position, but he may have simply been overweight shares of the company that signs his paycheck.
In general, investors should view insider buying (in the open market, paying out of pocket, not exercising options they receive as compensation) as a major net positive and insider selling as a possible negative.
So, despite the quick loss for Berkshire, those factors seem to align more in favor of buying with Buffett.
But what about the business side of the equation?
For one thing, we can’t discount the challenge of operating an international alcoholic beverage company against the backdrop of an ongoing trade war that has been largely responsible for the aforementioned 21.9% haircut that Buffett has already taken in the stock.
Plus, in the firm’s latest full-year earnings release in April, the company guided for a 17-20% decline in sales in fiscal-year 2026 followed by low-single-digit growth (flat to 3%) in fiscal years 2027 and 2028.
So, while alcohol is a defensive business, lower global sales plus consumers that were already drinking less (and could trade down to cheaper brands if the economy heads south) is, in my mind, a point in favor of the sellers.
The biggest possible upside for Constellation investors would seem to be a quick reversal of the ongoing tariff debacle and an economy that remains resilient.
We’re certainly seeing developments on that front, but it remains very much a work in progress.
But one final trend has had me bearish on alcohol companies for quite some time. Namely, the broader consumption trends among young consumers.
The younger generations are drinking less and are more likely to abstain from alcohol entirely.
That means that not only are existing consumers spending less on alcohol, but also that prospective future buyers are giving it the cold shoulder.
And while it’s not an insurmountable hurdle from a profit and earnings standpoint, it’s a big enough roadblock to long-term sales growth for me to leave a seat at the bar next to the Oracle of Omaha and pass on Constellation.
