Top hedge funds have performed extremely well for investors over the long run, and Lone Pine Capital has a reputation near the top of the industry. Run by former Tiger Management managaing director Steve Mandel, Lone Pine is known for its value-oriented approach toward unlocking value for shareholders, but that hasn't kept the hedge fund from making big bets on disruptive companies with high growth potential. Recently, Lone Pine released its latest holdings, and the hedge fund's biggest positions remain in Valeant Pharmaceuticals (NYSE:BHC), Priceline Group (NASDAQ:BKNG), and Charter Communications (NASDAQ:CHTR). Let's look at Lone Pine's reasoning behind owning these stocks and whether they would fit well in your investing strategy.
A Valeant effort
Lone Pine first announced a position in Valeant Pharmaceuticals in 2013, and the hedge fund has managed its holdings actively since then, adding to positions one quarter and then selling substantial portions of its shares the next. After cutting the fund's position in Valeant by half between September 2014 and June 2015, Lone Pine ramped up its purchases of the stock during the third quarter of 2015, and its 7.46 million share position represents about 5.4% of Lone Pine's assets.
That was before Valeant's huge controversy, which shook the company in October and sent the company's stock plunging. The pharmaceutical stock has faced an attack from well-known short-seller analyst Citron Research, as well as government investigations into how it prices its drugs. Mandel told investors that Lone Pine believes that concerns about drug-price regulations are "misplaced," and it will be interesting to see if Lone Pine doubles down on shares that are worth less than half what they fetched on Sept. 30 with further purchases in the current quarter.
Lone Pine also has a big position in online travel giant Priceline Group, representing the company's biggest shareholder. The hedge fund actually pulled back on its holdings during the quarter, selling about 200,000 shares. But it still held 5% of its total assets in Priceline stock, which the fund has owned off and on since 2007.
Mandel prides himself on owning stocks in what he calls Internet disruptors, using the power of technology to produce strong growth. Priceline definitely has a long history of taking full advantage of online access to boost its travel business, and its most recent quarter included its best results in its history. Worries about future guidance and the latest terrorist attacks in France have sent the stock downward in the past month. But in the long run, Priceline still has positive momentum and a competitive advantage over its travel peers that should help it moving forward.
Connecting the cord
Lone Pine's investment in cable giant Charter Communications puts it in good company, as Warren Buffett is also a major investor in the stock. Lone Pine boosted its holdings by nearly 1.2 million shares during the quarter, with its current position making up almost 5% of the fund's total assets. The hedge fund has been involved in Charter stock since 2012 but has dramatically built up its position in the past year or so.
Charter has defied trends that suggest more subscribers are cutting the cable cord in favor of Internet-based streaming options. Rather than selling out, Charter is buying video subscribers from other providers, betting that it can keep profiting in its new position as the second-largest cable provider in the country if a merger between its two key rivals goes through. Moreover, with the opportunity to cross-sell faster broadband services to many of those video customers, Charter could grow further. Mandel likely sees the value of that innovative approach, even if it represents a contrarian position within much of the industry.
Lone Pine has struggled in the third quarter, with declines of 3% to 10% in some of the firm's biggest individual fund offerings. Nevertheless, Mandel remains optimistic about a possible bounce, and its solid holdings make Lone Pine's favorite stocks worth considering for regular investors as well.