Hedge Fund Lone Pine Capital's Bold New Stock Picks

|
Includes: KO, MHS, NLSN, PCLN, USB
by: NakedValue

Lone Pine Capital is one of the most famous and successful hedge funds in the world. The fund was founded by Stephen Mandel, who formerly worked at Tiger Management. As of March 31, Lone Pine reported $12.575 billion in long US equity positions.

Here are some of Lone Pine's largest new stock purchases. These stocks provide an interesting list of companies for investors to take a closer look at.

Priceline.com Inc. (NASDAQ:PCLN)

Lone Pine Capital purchased 358,177 shares last quarter. The US-based company operates an Internet travel company with exposure to the United States, Europe and Asia. In addition to its flagship website, the company also operates Booking.com, Lowestfare.com, Rentalcars.com and MyTravelGuide.com.

The company has a trailing P/E of 44.05 and a forward P/E of 19.11. The company is very profitable as evidenced by their 17.5% profit margin and 20.3% return on assets. In 2010, PCLN had revenues of $3.08 billion, a 32% increase from 2009. Priceline is one of the stock market's hottest stocks. It peaked around $138 in early 2008 before dropping to around $50 during the height of the financial crisis. The stock has since soared as high as $560 per share.

In addition to Lone Pine, other famous hedge funds like Renaissance Technologies count PCLN among their top five holdings even after the stock's massive run up. Why the popularity? The answer is simple: Smart money is drawn to the company's international revenues and growth potential. The company drove most of their international business through its Booking.com asset, which contributed 69% of gross bookings and 82% of consolidated operating income in 2010. In 2010, international business contributed $1.4 billion to revenues, a 70% increase from $852 million in 2009.

Nielsen Holdings NV (NYSE:NLSN)

Lone Pine purchased 6,398,200 shares last quarter. The Netherlands-based company is a global information and measurement company. Among other things, its business centers on what consumers buy and what consumers watch. With the growing importance of data and a quickly developing global market, many view Nielsen Holdings as a strong play on strong secular trends. In 2010, developing markets comprised around 19% of revenues. Management has previously highlighted that the global middle class is growing by 70 million people each year, Nielsen (as well as many institutional investors) feel that the company could continue to have the economic winds at its back.

In addition to Lone Pine, Nielsen Holdings is a favorite among smart money investors. Shareholders include Kohlberg Kravis Roberts & Co, Citadel Advisors, Thomas H Lee Partners, Blackstone Group LP, Eton Park Capital Management and Oz Management.

The company trades at a price/sales of 2.10, a price/book of 2.41 and has a forward P/E of 17.1 based on expected earnings. In 2010, the company generated $5.126 billion of revenues, a 6.6% increase from 2009 levels.

Medco Health Solutions (NYSE:MHS)

As of March 31, Lone Pine owned 3,102,858 shares. The healthcare company provides pharmacy benefits management services for private and public employers as well as specialty groups and individuals throughout the world. While the low margin business seems to hold unlikely appeal for a high flying hedge fund, Medco's reasonable valuations and secular growth opportunities related to federal healthcare legislation are likely key factors.

The company trades at a trailing P/E of 19.47 and a forward P/E of 12.9. The company has exhibited strong growth in recent years. In 2010, it reported earnings of $65.968 billion of revenues, an increase of 10.3% from 2009 and a 28.7% increase from 2008.

Investors who are interested in Medco Health should also take a closer look at competitor Express Scripts Inc. (NASDAQ:ESRX). The two companies have a very similar profile, with ESRX offering a very modestly higher profitability profile. ESRX trades with a trailing P/E of 26.05, a forward P/E of 15.3 and a price/sales of 0.70.

US Bancorp (NYSE:USB)

Lone Pine purchased 6,541,298 shares last quarter. The bank operates just below the money center "too big to fail" banks such as Bank of America (NYSE:BAC), Citigroup Inc (NYSE:C), JP Morgan (NYSE:JPM) and Wells Fargo (NYSE:WFC). The banks in this intermediate tier could significantly benefit from the regulatory pressures and structural domestic growth limitations imposed on the largest banks. Lone Pine finds itself in good shareholder company. Capital World Investors owns 60,178,760 shares and Berkshire Hathaway (NYSE:BRK.B) owns 69,039,426 shares.

USB trades with a trailing P/E of 13.07 and a forward P/E of 9.72. The company's price/book of 1.68 is at a premium to other high profile banks. For example, C has a price/book of 0.69, BAC has a price/book of 0.54, JPM has a price/book of 0.98 and WFC has a price/book of 1.19. Despite this, the company's 1.22% return on assets should continue to improve and growth opportunities should present attractive new business.

The Coca-Cola Co (NYSE:KO)

Lone Pine purchased 2,586,200 shares last quarter. The global beverage company is a true blue chip company with one of the world's most famous brands. Once again, Lone Pine finds itself in the convenient situation of being common shareholders with Berkshire Hathaway, which famously owns 200,000,000 million shares of the iconic beverage company. In addition, Coca-Cola is also one of famed hedge fund Renaissance Technologies' largest holdings.

Following 2009's decline in revenues, Coca-Cola bounced back in 2010, growing sales by 13% to $35.119 billion. For a business of this size and nature, that is extremely impressive growth. KO trades at a trailing P/E of 12.9, a forward P/E of 15.6 and a price/sales of 4.05. The company sports an impressive profit margin of 31.7% over the last 12 months, but what really interests bulls is the global growth opportunity. As per capita income increases across the world, Coca-Cola stands to benefit enormously. Management clearly defines the opportunity for growth. It estimates that 55 billion servings of beverages are consumed everyday and that Coca-Cola's trademarked products represent only 1.7 billion of those servings.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in MHS, USB, KO over the next 72 hours.

Additional disclosure: I am long BAC and C shares.