By Siraj Sarwar
Steve Mandel founded Lone Pine Capital in 1997. Pine Capital has about $17 billion of assets under management. Steve Mandel is known for his stock picking skills. His picks returned about 23% annually in the previous 11 years, beating the S&P 500 index by almost 20 percentage points per year. Mr. Mandel uses both growth and value strategies. He prefers stocks which are trading at a discount to intrinsic value.
At the end of Q4, Lone Pine Capital initiated positions in 12 stocks and increased stakes in 18 stocks. In this article, I examine Lone Pine Capital's latest stock picks. These are Capital One Financial (COF), American International Group (AIG), Informatica Corporation (INFA), Intuitive Surgical (ISRG) and Mead Johnson Nutrition Company (MJN).
Percent of Portfolio
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Capital One Financial Corp is a financial services company which offers a variety of financial products and services. At the end of Q4, Lone Pine Capital initiated a position in the company by purchasing 4.4 million shares at an average price of $57 per share. This is the first appearance of the company in the portfolio.
Capital One is a fast growing bank. In the past five years, the company was able to grow its revenues at a rate of 11.35%. In the last year, it was able to produce an attractive profit margin of 17.45%.
Furthermore, in the last twelve months, it has generated EPS of $6.60. For the next five years, analysts have projected an annualized EPS growth of 7.94%. With a price to earnings ratio of 8.1, the stock is trading at a discount to industry average of 19.8. At the time of writing, the stock was trading at $54.42, which is well below its 52 week high of $62. I think the recent pullback provides an attractive opportunity to initiate a position in the company.
American International Group is an international insurance company serving customers in more than 130 countries. AIG serves institutional, commercial and individual customers on a global scale. At the end of Q4, Lone Pine started a position in AIG by purchasing 6.9 million shares, which represents about 1.55% of its portfolio.
After the dramatic bailout of AIG by the federal government, American International has gone through significant transformation. The new AIG focuses more on its core segments.
The stock is currently on a surge and gained nearly 30.56% in the last year alone. It has significant upside potential at present. Unlike most insurance companies AIG is trading a discount to its book value. The forward P/E ratio of 9.76, suggests further growth expectations from earnings. I think the new AIG is positioned well to support further growth in its core business segments.
Informatica Corporation is a provider of data integration software. The company was founded in 1993. It has increased its customer base from about 5,000 customers in 2004 to more than 30,000 customers in the last year.
INFA looks like a volatile stock. Over the previous two years, the stock has shown big swings. At the end of Q4, Lone Pine initiated a large position by purchasing 1.8 million shares at an average price of $30. Since then, the stock has been showing an upward trend and reached $36.20 at the time of writing.
The company has shown remarkable growth over the years. It has an average three year revenue growth rate of 17.5%. Additionally, in the past three years, it has been able to grow EPS at an annual rate of 7.9%. Analysts are pretty bullish on the company and expect an EPS growth rate of 15% for the next five years. The forward P/E of 21.94 is also substantially lower than the trailing P/E ratio of 44.2.
Intuitive Surgical designs, manufactures and markets Da Vinci Surgical Systems, EndoWrist instruments, and surgical accessories. At the end of Q4, Lone Pine started a position in Intuitive Surgical by purchasing 0.40 million shares, which represents 1.25% of its portfolio.
Recently, the stock has shown an exceptional volatility. At present, the stock is trading at $513,which is about $90 lower than its value a month ago. Nevertheless, the company is an industry leader and its exceptional growth is backed by strong revenues and earnings. Over the previous three years, it increased its revenues at a massive pace of 27.5%. Recent results prove that surgical robotics is developing into a platform technology with numerous new procedures.
Intuitive Surgical is a fast growing company. As such, it is priced with a premium compared to its peers. However, if analysts' estimates of double digit growth in earnings hold, the stock can be an outperformer. In addition, the company is working on a share repurchase program which can further increase its price.
Mead Johnson Nutrition Company manufactures and sells infant formulas, children's nutrition and other nutritional products. At the end of Q4, Lone Pine initiated a position in the company by purchasing 3.7 million shares. The hedge fund bought shares at an average price of $65 per share.
As the above chart demonstrates, the stock was trading for as low as $60 last November. Since then, the stock has gone on a surge and gained nearly 25%.
The company is in a strong position to back its stock performance potential. Recently, it announced Q4 results with a 7% increase in revenues and 10% increase in EPS. Furthermore, it announced an increase of 10% in its quarterly dividends. At present, the company offers a quarterly dividend of $0.34 per share. Mead has strong cash flows to support its dividends which makes it a safe pick for dividend-growth investors.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.