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We have been working on putting together our database of 13F filings from the fourth quarter of 2012. Hedge funds and other major investors are required to disclose many of their long equity positions as of the end of the quarter (in this case, the end of December) in these documents. The standard use of these filings is to review top investors? portfolios and treat them as free recommendations that the investment community can do more research on if the names in question seem appealing. We also like to develop investment strategies based on our database of filings; for example, the most popular small cap stocks among hedge funds have, on average, outperformed the S&P 500 by 18 percentage points per year (learn more about our small cap strategy).
Stephen Mandel is a Tiger Cub, having previously worked at legendary investor and billionaire Julian Robertson?s Tiger Management. Mandel has become a billionaire himself through managing Lone Pine Capital, which has over $15 billion in assets under management. Read on for our analysis of three themes in the hedge fund?s portfolio and compare its holdings to those reported in previous filings.
Selling Apple and eBay:?Mandel and his team sold all their shares of Apple (NASDAQ: AAPL); at the end of September, Lone Pine had owned a little over 800,000 shares of Apple. A number of hedge funds were making similar trades, and in fact Apple lost its place as the most popular stock among hedge funds last quarter. Apple?s stock trades at 11 times earnings as the stock has seen a sharp pullback in the last few months. The hedge fund also reduced its stake in eBay (NASDAQ: EBAY)?from about 13 million shares to 8.5 million between October and December, another significant sale. EBay is more of a growth stock; a 62% increase in the stock price in the last year has given it a trailing earnings multiple of 29. This has been inspired by the growing payments business, and in fact revenue was up 18% last quarter compared to the fourth quarter of 2011 though earnings were down.
Adding to top two picks:?Our database shows that Lone Pine?s two largest holdings by market value at the end of the third quarter were Priceline (NASDAQ: PCLN)?and Google (NASDAQ: GOOG). Tiger Global, another Tiger Cub fund, had also included these stocks among its top picks. During Q4 Lone Pine was buying both of these stocks, despite being so committed to them already: It reported 1.8 million shares of Priceline and 1.6 million shares of Google at the end of the quarter. Priceline is a pure growth company, with earnings up over 20% in its most recent quarterly report versus a year earlier but quite a bit of those prospects accounted for with a trailing earnings multiple of 27. Google is integrating its acquisition of Motorola Mobility Holdings, which has resulted in a temporary hit to earnings; analyst consensus implies that by next year the bottom line will have recovered enough that the forward P/E is 15 at current prices.
Dollar General:?Mandel and his team bought about 5 million shares of Dollar General (NYSE: DG), which was more than a 50% increase in the size of their position. Dollar General has underperformed the S&P over the last year as hype over dollar stores has dwindled, and it now trades at 17 times trailing earnings. This is despite the fact that Dollar General experienced double-digit growth rates in both revenue and earnings in its most recent quarter compared to the same period in the previous fiscal year. Lee Ainslie?s Maverick Capital has also been a major investor in Dollar General.
We think that Dollar General, Priceline, and eBay all have earnings growth rates high enough to make them worth a closer look, though it?s certainly the case that the latter two stocks have prices that already assume substantial growth over the next few years. Apple continues to look like a good value to us, as we would guess that it should be able to keep its earnings about steady. We like Google?s search business but think the company is better placed on a watch list until the Motorola acquisition has actually started to positively affect the bottom line.
This article is written by Matt Doiron and edited by Meena Krishnamsetty. Meena has long positions in Apple and Google.?The Motley Fool recommends Apple, eBay, Google, and Priceline.com. The Motley Fool owns shares of Apple, eBay, Google, and Priceline.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. Is this post wrong? Click here. Think you can do better? Join us and write your own!
Source: http://feeds.fool.com/~r/usmf/foolwatch/~3/O4rksfbgEuA/story01.htm
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