Here's What This $22 Billion Long-Term Winner Is Buying

Every quarter, many money managers have to disclose what they've bought and sold, via "13F" filings. Their latest moves can shine a bright light on smart stock picks.

Today let's look at Lone Pine Capital, founded by Steve Mandel in 1997. Prior to that, Mandel was a managing director at Tiger Management. Lone Pine is one of the biggest hedge fund companies and has reportedly outperformed the S&P 500 handily since inception. Like many value investors, Mandel is known to dig deep into companies, aiming to buy undervalued ones.

The company's reportable stock portfolio totaled $22.4 billion in value as of Sept. 30, 2013.

Interesting developments
So what does Lone Pine Capital's latest quarterly 13F filing tell us? Here are a few interesting details.

The biggest new holdings include Baidu (NASDAQ: BIDU  ) and MasterCard International. China-based search-engine giant Baidu has gained some 80% over the past year, even though the company's reputation took some hits, including allegations that it's facilitating piracy. Baidu's last quarter featured revenue up 42% but profit margins shrinking a bit as it invests in further growth. Bulls like Baidu's profitability and growth prospects, such as video, smart TVs, and mobile apps. Internet usage is growing rapidly in China, and Baidu is poised to keep growing briskly in the near future, too. There are already more than 270 million Android users in China, and Baidu is profiting from them.

Among holdings in which Lone Pine Capital increased its stake are Qualcomm (NASDAQ: QCOM  ) , which supplies chips for iDevices and Android devices. The company's fourth-quarter report was mixed, with revenue up 33% but earnings up only 18%, missing estimates. Qualcomm hiked its dividend by 40% earlier this year, and its yield is now at 1.9%. A bit of bad news is that Qualcomm's growth in China may be hampered by a Chinese probe into possible antimonopoly practices. Bulls like Qualcomm's expansion into health care and telemedicine, and the company is moving more strongly into networking as well. It has a new Gimbal beacon technology that rivals Apple's iBeacon, though the future of both is uncertain, and it has introduced a low-end 64-bit chip for smartphones, too.

Lone Pine Capital reduced its stake in lots of companies, including Kinder Morgan (NYSE: KMI  ) , a pipeline giant with a dividend yield of 4.6%. The company is a premier midstream MLP, growing its distributable cash flow by double digits lately as it collects gobs of cash from its partners. Kinder Morgan management recently cut back its guidance, sending shares down (and prompting my colleague Chuck Saletta to buy). The long-term picture remains promising for Kinder Morgan, but some worry that it might be growing too aggressively and may not be able to sustain its dividend.

Finally, Lone Pine Capital's biggest closed positions include Intuitive Surgical (NASDAQ: ISRG  ) and Ralph Lauren. Other closed positions of interest include Hertz Global Holdings (NYSE: HTZ  ) . Robotic surgical equipment leader Intuitive Surgical has lost almost a third of its value over the past year, hurt by bearish comments from a research company, questions about the efficacy of its systems, a warning letter from the FDA, and even product recalls, among other things. Investors need to decide whether these reflect long-term trouble for the company or temporary issues. Uncertainty can represent opportunity -- sometimes.

Hertz Global Holdings, meanwhile, is more than just a renter of cars, also renting tools and heavy construction equipment, among other things. Its brands include not just Hertz, but also Dollar, Thrifty, and Firefly. (Hertz bought Dollar Thrifty earlier this year for $2.3 billion.) Hertz recently lowered its near-term projections, seeing weak rental demand, and its stock took a hit. Still, consolidation in car rentals bodes well for Hertz. The company posted strong revenue growth in its third quarter, but its stock sank 10% on news of a deal gone bad, making some see the stock as a good value. Deutsche Bank recently rated Hertz stock a buy.

We should never blindly copy any investor's moves, no matter how talented the investor. But it can be useful to keep an eye on what smart folks are doing. 13F forms can be great places to find intriguing candidates for our portfolios.

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  • Report this Comment On December 13, 2013, at 2:56 PM, tdotsports1 wrote:

    Bidu looks like a great stock for 2014. Solid growth, well run company and nearly zero insiders selling.

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4/17/2014 4:00 PM
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