By Guan Wang
According to Bloomberg Markets, tiger cub Chase Coleman was the best-performing hedge fund manager last year. In 2011, a year when most other hedge funds suffered losses due to the European crisis, his Tiger Global fund returned 45%. Coleman's spectacular performance last year was thanks mainly to his bets on technology companies such as Facebook (FB), LinkedIn (LNKD), and Zynga (ZNGA), as well as his investments in start-up companies in emerging markets, such as India and Brazil. So far, Coleman's strong performance is continuing this year. To date, the 10 largest positions in his portfolio returned a weighted-average of 28%, versus 9.64% for S&P 500 index during the same period.
Table 1: Top 10 positions in Coleman's 13F portfolio as of December 31, 2011
YANDEX N V
PRICELINE COM INC
LIBERTY GLOBAL INC
VIACOM INC NEW
Three of the stocks on the list above have underperformed the market so far this year: Google Inc, Viacom Inc (VIA-B), and MakeMyTrip Limited. Viacom and MakeMyTrip are the 9th and 10th largest positions in Tiger Global's portfolio. We do not recommend MakeMyTrip as it looks overvalued, but we like Viacom. Even though it underperformed the market so far this year, we believe the stock will beat the market over the long term. Viacom has a relatively low forward P/E ratio of about 10.8 and its earnings are expected to grow at around 15% annually.
Similarly, we believe Google will outperform the market in the long run. Its forward P/E ratio is around 17 and its annual estimated growth rate is 18.5%. Google is also one of the most popular stocks among the 350+ hedge funds we track. There were 108 hedge funds with Google positions at the end of last year. Besides Coleman, Tiger Cub Stephen Mandel and John Griffin were also bullish about Google.
The best-performing stock listed in Coleman's portfolio is Priceline.com Inc. The stock is up 56% since the beginning of this year, beating the market by 46 percentage points. During the fourth quarter last year, Coleman boosted his Priceline stakes by 166%. As of December 31, 2011, his fund had $570 million invested in this position. If we assume Coleman did not increase or decrease his stakes since then, then he has made $320 million from this position. Priceline is also very popular amongst hedge funds. At the end of last year, there were 42 hedge funds reported to own Priceline in their 13F portfolios, including Andreas Halvorsen's Viking Global.
More than half of Priceline's bookings, revenues and profits are from its international businesses, mostly from its business in Europe. Though we are a bit concerned about the uncertainties in the soft European economy, we still expect the company's earnings and revenues to enjoy double-digit growth over the next few years. We especially like Priceline's expenditure in the Asian markets. In 2007, the company acquired Agoda, an online travel company focused on discount hotel bookings in Asia.
With regard to valuation, Priceline is expected to make $30.01 per share this year. The stock is currently trading at about $741 per share, which means its forward P/E ratio is 25, versus its industry's average of 89. Priceline's earnings are expected to grow at about 22% a year over the next couple of years. We think the company is one of the best in its industry and we think its target price should be around $780.
Coleman had several large positions with strong returns so far this year, including Yandex NV, Apple Inc, and Baidu Inc. These positions have all returned more than 25% since the beginning of 2012. We have been recommending Apple for its robust growth, and do not think its market price has reflected its strong growth potential yet, making it a good investment opportunity. By contrast, Yandex and Baidu have relatively high valuation levels. Their forward P/E ratios are about 32, but their growth rates are also high. Yandex's earnings are expected to grow at 40% per year and Baidu's growth expectation is 45% annually. We think that the growth may be worth the premium for investors looking to gain exposure to foreign markets.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.