Lone Pine Capital, L.L.C. is a privately owned hedge fund management firm with over $14 billion AUM. It was founded in 1998 by Steven Mandel, formerly a managing director and analyst at Tiger Management. Steve Mandel is arguably the most successful of the Tiger cubs who left legendary founder Julian Robertson Jr. to start their own funds. Steve is neither a growth nor value investor. He invests in good companies run by good people, with stock valuations below what he deems to be their intrinsic value. He is well known for his $500 million bet on Google (GOOG) in 2005 which helped him break into the top 10 hedge fund money makers.
The following is a list some of his top buys from the last quarter.
Shares Bought Last Quarter
Green Mountain Coffee Roasters Inc.
Ralph Lauren Corp.
Source: 13F filing
I like Baidu, Visa, Ralph Lauren and eBay as a prospective long candidate among above stocks. However I will recommend avoiding Green Mountain.
Baidu is the market leader in the Chinese Internet search market, with an 80% market share. The business has high barriers to entry and even Google wasn't able to meaningfully challenge Baidu's dominance in the past. Going forward, I believe Baidu can continue to post 50% plus growth for the next several years. China's total online advertising spend to GDP ratio is still five to eight years behind the U.S.
There is a secular tailwind for the leading search company, Baidu, which will be the likely beneficiary as the normalization occurs. According to consensus estimates, Baidu is expected to post EPS of $4.55 in the current year and $6.47 in the next year. It is trading at 21x forward P/E, which is reasonable given its 50% growth rate.
eBay provides online market place for sale of goods and services. It also provides other online commerce, platforms and payment solutions to businesses and individuals.
eBay reported impressive fourth quarter results with revenues of $3.38 billion (up 35% YoY) and non-GAAP EPS of $0.60 (up 17% YoY) versus the Street estimates of $3.31 billion and $0.57, respectively. eBay's core retailing business -- marketplace -- seems to be making a turnaround as it revamped the website, invested in new technologies recasting it as an online mall. eBay's payments unit, PayPal, also performed strongly. The active Paypal accounts increased by 13% YoY and Paypal showed a strong increase of 130 bp in its margins.
Both these businesses, PayPal and marketplace, have more than 100 million active users, and the user base is growing steadily. In addition to strong trends in its PayPal and marketplace businesses, eBay's new mobile payment systems seems to be making headway along with the robust growth of e-commerce businesses. The mobile payment volume was $4 billion in 2011, five times more than its previous year volume and is estimated to be $7 billion in 2012.
Although eBay's guidance for 2012 was mixed, it mainly has to do with conservatism on the part of management, particularly given the eurozone uncertainty. I recommend buying the stock from a medium-term perspective as turnaround of its core marketplace business continues to attract more and more consumers.
Ralph Lauren is transitioning itself into a premium luxury brand from an apparel company. It deserves a higher PE multiple in line with luxury brands given its accelerating emphasis on building out a global luxury business with a focus on non-sportswear luxury categories. In the near-term, with cyclical cost pressures reversing and an ongoing favorable mix shift towards high margin businesses, I expect the company's EBIT margin to expand. There is also a likelihood of EPS estimates getting revised higher, which along with company's expanding ROIC, can lead to an upside for the stock.
I like Visa because of its high EPS growth (high teens) and relatively defensive nature in the financial sector. I see Visa as a secular growth story benefiting from spending patterns shifting from paper to plastic globally for the next several years. In the near-term continued favorable macro and company specific developments, including Visa's recently disclosed new pricing structure should support the stock.
Green Mountain Coffee Roasters' stock recently got hit by the news of Starbucks (SBUX) entering the single serves coffee market. I see a further downside in the stock. I am concerned that Starbucks, with deep pockets and several years of experience, may prove to be a tough competition for Green Mountain by diverting consumer attention and creating more competition in the next generation of single cup systems. Although Green Mountain's stock price has corrected, I don't think it's over yet. One year ago, when Starbucks announced partnership with Green Mountain on K-cups, Green Mountain's stock went from $40 to $60 in a week's time as investors were relieved that a big source of competition is gone. Now, a year later when investors were proved wrong by Starbucks announcement, the stock has corrected from $62 to $52. Clearly, there is more room to go down if investors begin pricing in a serious competition.