Many individual investors look to professional hedge-fund managers for ideas on smart stocks to buy. Lone Pine Capital has been a successful hedge fund for years, with Steve Mandel at the helm directing its investments. In its latest release of its holdings, Lone Pine revealed that it had made some big acquisitions, including Amazon.com (NASDAQ:AMZN), Constellation Brands (NYSE:STZ), and Electronic Arts (NASDAQ:EA). With Lone Pine having built up positions that were worth more than $1.9 billion at the end of September, individual investors can see evidence of Mandel's confidence in these three stocks. Let's look more closely at what Lone Pine did and whether these three stocks make sense for you.
Betting big on e-commerce
Lone Pine's new position in Amazon.com is its biggest of the quarter, with the company building up a 1.94 million share position in the e-commerce giant. That made Lone Pine's stake in the company worth nearly $1 billion, making up more than 4% of its almost $25 billion portfolio of reportable holdings. Lone Pine has had investments in Amazon in the past, but they have tended to be opportunistic and short-term in nature.
Amazon has long been a controversial stock, as its revenue growth hasn't yet resulted in the level of profitability that many investors would prefer to see. Recently, Amazon has appeared to take steps to start remedying that situation, with the stock soaring more than 22% in October after the company reported more than half a billion dollars in operating income solely from its Amazon Web Services cloud-computing and web-hosting service. Investors have been willing to accept that Amazon's future promise justifies an ever-increasing share price even in the absence of more substantial profits, and Lone Pine appears to see the company as representative of the hedge fund's broader commitment to disruptive technology companies.
Brewing up big gains?
Constellation Brands represents a more modest investment for Lone Pine, but the position that the hedge fund took involves a larger percentage of the beer and spirits-maker's market capitalization. Lone Pine bought more than 4.68 million shares of Constellation Brands, building up a 2.7% position that was worth more than $586 million at quarter-end. Unlike with Amazon, Lone Pine hasn't dabbled in Constellation stock in the past.
Constellation has moved aggressively toward building up its beer portfolio. After a major acquisition of brands Corona and Modelo in 2013, Constellation just announced the $1 billion buyout of craft-beer company Ballast Point Brewing. Ballast Point will add 40 beer brands to Constellation's lineup, including the well-regarded Sculpin India pale ale. Other major players have made big moves in the beer space lately, and Constellation hopes that greater exposure to craft beer will put it in better position to keep its competitive edge going forward.
Winning the game
Lone Pine's investment in video game manufacturer Electronic Arts wasn't a new purchase, but the hedge fund dramatically increased its stake. Lone Pine's purchase of nearly 8 million shares during the quarter brought its total holdings to 8.78 million shares, and the shares that the hedge fund bought was worth about $541 million at the end of the quarter.
EA has profited greatly from long-running franchises like Madden NFL and other sports-related games, but a lot of the buzz surrounding the video game maker lately has come from its latest installment of its Battlefield series, which incorporates a licensing agreement that allowed it to take place in the Star Wars universe and was released in mid-November. Given the upcoming release of new movies in the Star Wars franchise, EA expected huge demand for the game, and many investors immediately concluded that Star Wars: Battlefield would become a multiyear success with plenty of potential for future sequels. The company is being smart about managing those expectations, but EA could nevertheless enjoy nice gains riding Star Wars coattails.
Lone Pine's buys are diverse and show the scope that Mandel and his team have in looking for good prospects. Each of these three stocks looks promising and could fit well in the stock portfolios of many individual investors.
Dan Caplinger has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Amazon.com. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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