Top Holdings Of Stephen Mandel's Lone Pine Capital

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Includes: AAPL, CCI, CTSH, DG, ESRX, GOOG, NWSA, QCOM, RL, SLB
by: The Analyst Hub

Founded in January 1998 by Stephen F. Mandel, Jr., Lone Pine Capital, L.L.C. is a privately owned hedge fund management firm with over $14bn AUM.

Investment Strategy: Lone Pine Capital, L.L.C. uses long/short strategies, focusing on the healthcare, technology, financial services, media and telecommunications, industrials and consumer/retail sectors. The firm utilizes a bottom-up fundamental approach. Lone Pine Capital balances long/short exposure either by industry or country while avoiding a large concentration of 'one-way' exposure. The long strategy looks for growth companies where there is a high rate of return and reinvestment, lower-tier growth companies that are generating cash and using it for the benefit of shareholders and undervalued companies with the opportunity to outperform through a new approach or new management. The short strategy also follows a classic stock-picking approach. This strategy is not opportunistic and does not have a month-to-month focus. The firm looks for companies where there is a general misperception or if there is a slight value and momentum element. Emphasis is placed on companies where a business model is not properly executed. Lone Pine Capital looks for opportunities globally through ADRs or ordinary issues. The firm's currency exposure is not hedged and is minimized through natural hedges either by long or short positions.

The following is a list of its top 10 holdings from the last quarter.

Stock

Symbol

Shares Held - 09/30/2011

% of Portfolio

Change in shares

Apple Inc.

AAPL

2059427

6.53

82164

Cognizant Technology Solutions Corp.

CTSH

10697067

5.58

2091407

Dollar General Corporation

DG

15811147

4.97

-378994

Polo Ralph Lauren Corp.

RL

4215814

4.55

129916

Express Scripts Inc.

ESRX

13443610

4.15

5397283

Crown Castle International Corp.

CCI

12145787

4.11

59322

Google Inc.

GOOG

938388

4.02

107056

News Corp.

NWSA

26522223

3.42

21796103

Schlumberger Limited

SLB

6041581

3.00

1954990

Qualcomm Incorporated

QCOM

7222518

2.92

1050545

Source: 13F filing

My favourite long candidates among above stocks are Apple, Ralph Lauren and Google. However, I would like to avoid News Corp.

I like Apple despite of its last quarter earnings miss. This miss was largely due to customers holding back on new iPhone purchases before the iPhone 4S launch in October. iPhone 4S is currently seeing very strong demand, with over 4 million units sold in just three days after the launch in early October.

Recent read throughs from the earnings calls of AT&T (T),Verizon (VZ) and Sprint (S) have also indicated strong trends for iPhone 4S. The carriers have witnessed a slowdown in sales of Android and BlackBerry phones in addition to iPhone sales from Q2 to Q3. There is a good chance that a number of Android/BlackBerry customers also waited to switch to the iPhone 4S in October, and that’s why they delayed purchases.

Going forward, in the near term, Apple is likely to continue seeing strong demand on the back of holiday sales and anticipated iPad3 and iPhone5 launches next year. From a medium- to long-term perspective, Apple’s secular growth and market share gain story in the smartphone and tablet space is likely to continue for the next several years.

Apple's strategy of customer-centric innovation and launching products that have a potential to create whole new markets on their own is still intact and if one goes by Steve Job’s biography, Apple TV is likely the next such product in the line. At valuation of just 8.25x forward earnings (adjusted for cash), Apple is trading at very attractive levels and I believe it is a good opportunity to go long on the stock.

Ralph Lauren Corporation is engaged in the design, marketing and distribution of products, including men’s, women’s and children’s apparel, accessories, fragrances and home furnishings. The Company operates in three segments: Wholesale, Retail and Licensing. Its apparel products include a range of men’s, women’s and children’s clothing. Accessories include a range of footwear, eyewear, watches, jewelry, hats, belts and leathergoods, including handbags and luggage.

Ralph Lauren is not seeing any slowdown in its business, and it recently reported strong Q2 results despite the broader macro uncertainty. Going forward, it has good potential to increase its margins as input costs (in particular cotton prices) decline, positive pricing actions take hold and the company benefits from expanding scale. In addition to the margins, RL has good potential to achieve strong revenue growth over the next several years driven by category, channel and geographical expansion.

Google is the world's #1 search engine and online advertising company. I am bullish on Google both from a short-term view as well as long-term perspective. My short-term confidence in the stock is derived from recent comScore data on search growth. According to comScore, U.S. search queries accelerated to 8.8% year/year in October from 6.8% y/y in September. Total month-over-month growth was 5.7% in October (above 3.8% m/m growth seen in September). Google searches increased 7.6% y/y, an improvement of over 5.5% y/y in September and 7.4% y/y in 3Q11. Google gained 30 bps in market share mostly at the expense of Yahoo (YHOO). This healthy trend in search is reassuring, particularly amid an uncertain macro-economic backdrop.

In addition to the near-term healthy trends, I see a big potential from the recent announcement by Google that it would be launching 100 online video channels on YouTube that would feature new original programming from celebrities such as Jay-Z, Madonna, Shaquille O’Neal and Tony Hawk. This venture will generate ~25 hours of new, on-demand, original content per channel per day, and Google is reportedly paying up more than $100 million in advance to its content partners. I believe this can potentially have a very big impact in the long run (2013 onwards). Currently only 3% of YouTube videos are monetized through video advertising. This can increase significantly as more and more original content comes online through these partnerships. Also, quality content is likely to bring in more advertisers and we are likely to witness a secular shift of advertisers from traditional media to online.

Trading at less than 14x forward EPS, I find the risk-reward profile of Google very attractive.

News Corporation is a diversified global media company. The Company operates in six segments: Cable Network Programming; Filmed Entertainment; Television; Direct Broadcast Satellite Television; Publishing, and Other. I believe we are entering another slowdown and News Corp being a media company will be among the first companies to take a hit as advertising spending is cut.

In the long run, I see a big risk to “Old Media” television companies as time spent on prime-time television is decreasing and internet usage (web 2.0 in particular) is increasing. Gadgets like iPads are also a big risk. News Corp dabbled in Web 2.0 business with MySpace but failed miserably. This clearly shows that News Corp (or for that matter any “Old Media” companies) do not have any inherent advantage in “New Media” business and are likely to see tough competition going forward. Further reputation loss caused by the phone hacking scandal will continue to haunt News Corp in the long term and adversely affect its influence.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.