Edited by Juna Young
In 1997, Stephen Mandel founded Lone Pine Capital LLC in Greenwich, Connecticut. Mandel graduated from Dartmouth College and completed his MBA at Harvard Business School. In 1982, he started his career at Mars & Company, but soon thereafter joined Goldman Sachs as a mass-market retail analyst. At Goldman Sachs, he improved his financial acumen by learning market and financial trends. Mandel's abilities were only improved further when the financial tycoon, Julian Robertson, took him under his wing in 1990. Mandel went on to serve Tiger Management for seven years as a managing director and consumer analyst, before leaving to launch Lone Pine Capital LLC.
Lone Pine Capital is a privately held hedge fund, with satellite offices in London, Hong Kong, and New York. It holds highly diversified investments in public equities from all over the globe. According to Whale Wisdom, Lone Pine Capital fund is currently worth around $17 billion, while Stephen Mandel has an estimated net worth of $1.5 billion. Lone Pine Capital has consistently surpassed the S&P 500 index by more than 20 percentage points since its inception.
Stephen Mandel has an incredibly distinct investment strategy. Mandel practices a bottom-up methodology in order to choose the best stocks. This strategy involves seeking out companies with good governance structures. Mandel does not focus on the minutiae, but instead looks carefully at the fundamental factors that make a stock strong. He knows how to identify those stocks that move independently within the market and are not reliant on macroeconomic events or indicators. Mandel is also known for his swift decision-making ability and solid judgments. He buys and sells stocks quickly, but with great business acumen.
Lone Pine Capital recently filed its 13F with the SEC for the second quarter of 2012, reporting 16 new purchases, 20 additional stocks, reduced holdings in 15 stocks, and 10 stocks sold out. In this article, I will assess the company's three newest major holdings: (Data is obtained from Finviz on August 31, 2012)
eBay Inc. (EBAY)
eBay Inc. is one of the world's largest online marketplaces, headquartered in San Jose, California. It has a market capitalization of $60.54 billion. Lone Pine owns 13,903,725 shares, which makes up 3.44 percent of the fund's total holdings.
EBAY is traded at a forward P/E of 17.21. The EPS moved up 81.29 percent since the first quarter. Also, EPS for the second quarter is 145.64 percent higher than the same quarter last year. In addition, sales also increased by 23.12 percent, when compared with the second quarter last year. Profit margin currently stands at 28.66 percent.
EBAY is known for its astute acquisitions, as well as its partnerships with key companies and merchants. For example, EBAY now owns Paypal, the Internet's leading payment facility. Paypal is a becoming an increasingly important intermediary for online transactions. As a major e-commerce player, I think eBay is highly undervalued. Online shopping is becoming an increasingly popular business model. EBAY has the capability and the network resources to bridge the market to the customers.
While most online companies tend to have sky-high valuations, eBay trades at a less than fair value. When compared with its closest competitor, Amazon (AMZN), eBay is obviously cheaper. eBay's trailing P/E of 16 is a fraction of Amazon's trailing P/E of 300. eBay also facilitates quick expansion and has a wider network in the worldwide market. This fact is demonstrated by EBAY's return on equity at 21.25 percent compared to AMZN's return at only 4.94 percent. Moreover, EBAY's profit margin is 28.66 percent compared to AMZN's dismal 0.60 percent. AMZN may be traded at a premium but I think it is risky to anticipate growth and profit from the stock in the long-term. On the other hand, EBAY has a lot of earning potential. I am bullish about this stock, and I think eBay is indeed worthy of going long.
News Corp. (NWSA)
News Corp. is a diverse, multinational mass media corporation located in New York City. Among News Corp.'s holdings are Fox News, The Wall Street Journal, and Twentieth Century Fox. It has a market capitalization of $55.11 billion. Lone Pine owns 13,675,800 shares, which comprises 1.80 percent of its total portfolio.
NWSA is traded at a forward P/E of 11.82. The EPS took a dip this year by -58.61 percent, but is expected to maintain a positive 15.74 percent over the next five years. Analysts expect the stock to hit $25.91. With a profit margin of 4.17 percent, News Corp. managed a dividend yield of 0.73 percent.
Lone Pine is bullish about News Corp. The main selling point of NWSA is its diversified portfolio and discounted price. It has a healthy balance sheet but shows slow movement on its income statement. I believe Lone Pine chose the optimal entry point for this stock. I expect this company to maintain steady growth in the foreseeable future, so long as it keeps up with innovative entertainment service providers, such as Netflix (NFLX).
Netflix is currently trading at a forward P/E of 66.97 and has an EPS growth of 40.42 percent. EPS next year is expected to grow substantially. Lone Pine also owns 360,988 shares of Netflix or 0.15 percent of the outstanding stocks. This stock has enormous earning potential over the long term, making it a strategic buy at this time.
Liberty Global Inc. (LBTYA)
Liberty Global Inc. is a global media company and the world's largest broadband provider, headquartered in Englewood, Colorado. It has a market capitalization of $14.67 billion. Lone Pine Capital recently acquired 6,080,909 shares, which comprises 1.78 percent of its total portfolio.
Liberty's EPS for the second quarter is 42.92 percent higher than the same quarter last year, and the EPS for next year is poised for 73.33 percent growth. Currently, LBTYA has a profit margin of -10.51 percent. It is currently trading below its 52-week high.
Liberty Global's position in the broadband market has great potential for earnings and growth. Liberty Global ranks fourth for long-term annualized growth within the industry. Meanwhile, Virgin Media Inc. leads the pack in terms of market capital and P/E ratio. Lone Pine Capital is bullish about Liberty Global, but I don't expect them to go long on this one. My position on LBTYA is short.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.