In this installment of my analysis of recent purchases made by renowned investors, I will look at 5 non-tech stocks bought by Stephen Mandel Jr's Lone Pine Capital using the latest available SEC filings of the fund. For his tech picks, please visit my previous article on the subject.
Stephen Mandel Jr is famous for using bottom-up investment analysis and is a very fundamentals-oriented investor. For this article, I have selected five stocks purchased by the fund during the 3rd quarter of last year, which offer a minimum return of 20% from current levels. The companies included are part of diverse sectors including healthcare, consumer cyclical, energy, and services.
Express Scripts, Inc. (NASDAQ:ESRX)
ESRX is a $25.4 billion company by market capitalization and provides pharmacy benefit management services to clients ranging from health insurers to health management organizations. The stock price appreciated by approximately 200% during the last five years compared with the 8% increase in the broader healthcare index.
Stephen Mandel added approximately 5.4 million shares of ESRX during Q3 last year. The company is expected to grow its earnings at an annual rate of 16% on par with the projected 15% growth rate of the healthcare facilities industry. Applying my estimated P/E of 17.5 to 2012 EPS estimate of $3.62, my initial price target of $63 a share is obtained. A return of 22% is possible from current levels.
Williams-Sonoma, Inc. (NYSE:WSM)
Williams-Sonoma is the owner of the popular Pottery Barn chain. It also sells cooking and entertaining essentials under its namesake brand. The stock has been one of the laggards in the market year to date with a decline of 4.23% compared with the 7% gain in the S&P500 (NYSEARCA:SPY) index. It dropped from $39 to $33 in mid-January after lowering its Q4 2011 EPS estimate just below the consensus low end of the estimates. Analysts still expect the company to grow at an annual rate of 14% over the long term similar to the growth rate of the broader industry.
Lone Pine Capital initiated a position in WSM by purchasing 5.8 million shares. Applying a P/E of 18 to 2012 average analyst EPS estimate of $2.47, my price target of $44 is obtained. The stock also offers a dividend of 2.3%. A total return of 23% is possible from current levels.
Schlumberger Limited. (NYSE:SLB)
SLB's stock declined by approximately 18% last year, but the shareholders have made up most of the losses with the stock being a strong performer this year, gaining 15% year to date. The company's earnings declined at an annual rate of 6% during the last five years. Going forward, SLB has a projected long-term growth rate of 25% indicating a bright future for its shareholders.
Stephen Mandel increased his position in SLB by 48% by acquiring 1.95 million shares. My 12-month price target for SLB is $94 a share obtained by applying a multiple of 20 to 2012 EPS estimate of $4.71. SLB therefore offers a return of 21% (including dividends) from current levels.
Bed Bath & Beyond, Inc. (NASDAQ:BBBY)
BBBY operates a chain of retail stores including Bed Bath & Beyond, Christmas Tree Shops, Harmon and Harmon Face Values, and buybuy BABY in the U.S. and Canada. Lone Pine Capital increased its position in BBBY by acquiring approximately 1.3 million shares at an estimated average price of $57 a share compared with the current price of $63. The company is expected to grow at an annual rate of 16% on par with the 16% growth rate of the retail sector.
My target of $76 is obtained by applying a P/E of 17 to 2012 EPS estimate of $4.45. A return of 20% is possible from current levels.
Ctrip.com International, Ltd. ADR (NASDAQ:CTRP)
CTRP is a Chinese travel services company with $3.6 billion market capitalization. It focuses on frequent independent travelers who do not travel in groups. The stock price appreciated by approximately 47% during the last five years compared with the 6% decline broader markets. The stock has been trending downward for the last one year having lost 38% of its value and is now attractively priced in my opinion. The company is expected to grow its earnings at an annual rate of 19%, modestly higher than the projected 16% growth rate of the lodging industry. Applying my estimated P/E of 24 to 2012 EPS estimate of $1.29, my initial price target of $31 a share is obtained. A return of 23% is possible from current levels.
Stephen Mandel increased his position in CTRP by 6% to take his total holding to 8.08 million shares.
As always, please do not consider this list as a "buy" list, rather use this list as a starting point for your research. I plan to analyze CTRP, WSM and BBBY in greater detail in future articles and might consider opening a position in one or more of these companies.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.