Billionaire Stephen Mandel's New Stock Picks

Includes: AIG, COF, FB, ISRG, MJN
by: Insider Monkey

By Eric Winter

Hedge funds and major investors are required by the SEC to disclose many of their equity, bond, and option positions in filings known as 13Fs. The time has come for many of those fourth-quarter 2012 filings to be released, and similar to quarters past, we have analyzed the holdings of 400+ funds to glean information from these heavyweight investors. We have found that the most popular small-cap stocks amongst the top hedge funds have beat the market by 18 percentage points per year (learn more about the strategy here). Stephen Mandel of Lone Pine Capital manages almost $16 billion dollars and has accumulated over a billion in wealth for himself along the way. Let's take a look at his largest new positions formed last quarter.

Lone Pine initiated 12 new positions in 4Q 2012, with the largest being Facebook, Inc. (NASDAQ:FB). Facebook has not had the steep uphill climb that many investors were hoping for, resulting in a rollercoaster trading range since the initial decline post-IPO. The past year saw a net change of -3.7% for the social network; this underperformance didn't stop hedge fund managers from buying, as its popularity grew by almost 40% amongst the hedge funds we track from Q3 2012 to Q4 2012. The company continues to push out new offerings to both users and advertisers and sees continued growth in emerging markets and mobile use for the year ahead. Billionaire Jeffrey Vinik upped his share count substantially last quarter.

With an allocation of 1.6% of the firm's billions, Capital One Financial Corp. (NYSE:COF) was the second-largest addition. The financial holding company narrowly escaped the past twelve months with a positive gain, although Wall Street sees a brighter future with a mean price valuation of +25% a year out. COF's earnings release for 4Q 2012 saw considerable growth over the same quarter last year, although reported numbers were a $0.20 disappointment over expected values. The company will be forging ahead with two large acquisitions from HSBC and ING; weak loan demand and commercial real estate exposure may conspire to impede growth, however. Tiger Management recently initiated a $19mm position.

American International Group (NYSE:AIG) has become the top stock amongst the funds in our database, pushed up by buying from billionaires like Mandel. Interest from money managers rose by 80% in the third quarter of 2012. Hurricane Sandy brought losses in its property & casualty division according to AIG's latest earnings report; however, the company managed to still post an operating profit and exhibited substantial revenue growth year over year. The stock was recently reiterated a Buy at Sandler O'Neill and received a price upgrade from $47 to $41 by Deutsche Bank; Goldman Sachs also takes a bullish view with higher EPS estimates for 2015. D.E. Shaw has built an 11.8mm share position.

Mead Johnson Nutrition Company (NYSE:MJN) received a percent and a half of the fund's billions and represented the smallest market cap play of the stocks on this list at $15bn. The maker of infant formula Enfamil gave a roughly flat performance for investors who bought a year prior, although the company's dividend yield of 1.5% offered some quarterly income. MJN just received a blow by the Hong Kong government after regulations were passed that capped the flow of milk products for travelers between the territories - Hong Kong accounts for about 30% of MJN's sales in that region. John Paulson recently tacked on $66mm worth to his portfolio (see the billionaire's top picks here).

Surgical instrument manufacturer Intuitive Surgical, Inc. (NASDAQ:ISRG) was the last new addition we covered, capturing a 1.25% portfolio investment from Lone Pine. ISRG delivered earnings beat after earnings beat for the past four quarters and recently posted a +5% surprise last month for its Q4 2012 announcement. Both revenue and earnings saw growth year over year to the tune of 23% and 16%, respectively. Bulls will love the fact that Goldman Sachs recently issued a Buy rating for the stock, pushing its price target up to $715 from $591. Janney Montgomery Scott and Lazard Capital issued the same rating a month prior. Jim Simons has $123mm invested in ISRG.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Business relationship disclosure: This article is written by Insider Monkey's writer, Eric Winter, and edited by Meena Krishnamsetty. They don't have any business relationships with any of the companies mentioned in this article and they didn't receive compensation (other than from Insider Monkey and Seeking Alpha) to write this article.