Stephen Mandel, like several other money managers, is often referred to as a “tiger-cub”. This originated from his tenure with renowned investor, Julian Robertson at Tiger Management Corporation. Julian Robertson is credited as one of the earliest founders of hedge funds. From his initial startup of $8 million, he made over $22 billion upon that capital by utilizing talented men and women as analysts from around the country. Many these analysts, who are now so eloquently referred to as “tiger-cubs”, would go on to launch their own hedge funds, When Julian Robertson shut down Tiger Management in 2000, he decided to further develop, mentor, and fund several of those that he felt were his brightest analysts. These analysts would then be known as “tiger-seeds”, and like their predecessors, would launch their own funds.
As a whole however, the successes of these funds cannot be described as consistent. The cubs are generally more successful then the seeds, perhaps due to their direct exposure and tutorage under Robertson. Several of the seeds posted losses in their first year, while others are under investigation for securities misconduct. It has been reasoned that these unspectacular results lie in the long-short equity strategy that Robertson utilized. The long-short equity strategy invests primarily in stocks, and as such, is more exposed to global macro events. Though fundamentals are pivotal to value investing, these funds experience greater movement in their positions due to the cyclical nature of the market. In addition, these new seeds are receiving less and less mentorage from Robertson, and as such, are not of the same veteran caliber as the cubs were when they launched their own funds.
Nonetheless, as a portfolio manager, Stephen Mandel boasts of beating the benchmark S&P 500 by 20% each year for the last 11 years. His success can be attributed to his methodology of “bottom-up” investing. At its very core, bottom-up investing deemphasizes the important of macroeconomic events and indicators, but rather, focuses on the fundamentals of the company. That being said, a through analysis of a company must be performed to understand its practices, operations, and future growth in order to render the final decision whether to long or short. Unlike most managers however, Stephen Mandel moves relatively quickly in and out of positions, as can be seen in his new holdings of Citigroup and Schulumberger.
Lone Pine Capital’s overall portfolio composition can be seen in the following charts. The most notable change is the sharp reduction in technology by 8.20%, followed by similar sized reductions in telecommunications, and consumer goods & services. There were minor increases in financials, health care, and basic materials, in conjunction with a modest increase in oil & gas holdings.
Overall Portfolio Composition
Oil & Gas
Lone Pine Capital manages a portfolio of $12.136 billion in 52 stocks. Approximately 24% of their assets are invested in the following five equities. Several important changes should be noted. Lone Pine Capital’s purchased a large stake in Citigroup approximating $700 million from Q3 to Q4. In addition, a $584 million position was initiated into Schulumberger. The aggregate portfolio also saw a significant reduction in Apple, Yum Brands and Cognizant Technology.
Top Five Holdings for Q4
Total Value of Portfolio
Top Five Holdings for Q3
Crown Castle International
JP Morgan Chase
Total Value of Portfolio
Citigroup is a financial services company catering to both personal and business consumers. Citigroup’s market capitalization is $136.28 billion, and their shares trade around $4.69. Citigroup compromise of 5.66% of Lone Pine Capital’s portfolio, and is one of the “Big Four Banks” in the United States. Citigroup is the newest and largest holding of Line Pine, comprising $686 million of Lone Pine’s overall portfolio.
Citigroup has a P/E ratio of 13.4, P/B ratio of .8, and a P/S ratio of 1.53. For their fiscal year ending in 12/10, they reported revenues at $111 billion with net income at $10 million, yielding a profit margin at 9%. Their earnings per share for the fiscal year were $.35.
Recent developments with Citigroup include a lawsuit by Allstate, alleging malfeasance in the mortgage securities Citigroup sold. In addition, Citigroup is likely to receive fines for their foreclosure practices, along with several of the other major banks according to regulators. Citigroup is attempting to spin off its CitiFinancial group, with potential suitors such as Blackrock and the Carlyle Group.
Gurufocus rated Citigroup with the business predictability rank of 1 star.
Yum! Brands (YUM)
Yum is an international restaurant franchising company consisting of household brands such as KFC, Taco Bell, Pizza Hut and Long John Silvers. Yum’s market capitalization is $23.68 billion, and their shares trade around$ 50.66. Yum is the second largest holding of Lone Pine Capital, totaling at 4.99% of the aggregate portfolio. The net position of Yum was reduced by approximately 14.5% quarter to quarter.
Yum has a P/E ratio of 21.24, a P/B ratio of 14.83, and a P/S ratio of 2.05. For their most recent fiscal year, they earned $11.3 Billion, with a net income of 1.158 billion, yielding a margin of 10.2%. Their earnings came in at $2.39 per share in conjunction with a dividend yield it 1.97%. Their revenue growth for the last 10 years was approximately 9%, with earnings at 13.6%.
Yum Brands was recently selected as #44 on Fortune’s magazine of most admired company. Yum is currently evolving its market strategy to further penetrate into the Asian markets, with a goal of establishing 20,000 restaurants in China alone.
Gurufocus rated Yum! Brands with the business predictability rank of 3 ½ stars.
Schlumberger Ltd (SLB)
Schlumberger is a company that provides oilfield services ranging from technology, project management to information solutions. Schlumberger’s market capitalization is at $126.37 billion, with shares trading around $92.85. Schlumberger is the third largest holding of Lone Pine Capital, making up 4.82% of the portfolio, and is one of the newer equities in the portfolio.
Schlumberger has a P/E ratio of 26.05, a P/B ratio of 3.99, and a P/S ratio of 4.30. They reported revenues at $28.93 billion, and a net income of $4.26 billion, yielding a margin of 14.7%.Their earnings for the same year were $3.56 per share, with a dividend yield of 1.08%. For the last 5 years, Schlumberger has grown its revenues by 9.6% and its earnings by 6%.
Schlumberger has experienced positive media coverage recently from a variety of sources. On the popular show Mad Money, Jim Cramer made a recommendation to try it “as an investment”. Furthermore, Goldman Sachs maintained its buy rating on Schlumberger, and raised its price target to $100, a 7.7% increase. At the moment, Schlumberger has ceased its operations in Libya as a result of the growing turmoil and concern. Its CEO had this to say regarding the matter, “"The current situation in Libya is disturbing, our operations are shut down, and at the current time, all our efforts are concentrated on trying to repatriate our employees…We are actively monitoring the situation across the region."
Gurufocus rated Schulumberger with the business predictability rank of 1 star.
Apple manufactures and markets a variety of products and software to a diverse audience around the world. Apple products are household names ranging from IPods to Mac notebooks. Apple’s market capitalization is $331.25 billion with shares trading around $359.56. Apple’s net position in the portfolio was reduced by 38.8% from Q3 to Q4.
Apple has a P/E ratio of 20.07, a P/B ratio of 6.69, and a P/S ratio of 4.93. Revenues were at $65 billion for the fiscal year, with a net income of $14 billion. This yields a margin of 21.5%, along with unparalleled earnings at $15.15 per share. This success is not out of the ordinary, as for the last 5 years, Apple has experienced tremendous growth, with revenues growing at 32.1%, and earnings at 56.4% respectively. Like most tech companies, Apple does not pay out dividends at the moment.
In terms of recent news, Apple recently unveiled its iPad 2, and as such, there is much abuzz regarding Apple’s future prospects. Goldman Sachs reconfirmed its conviction buy of Apple, with a new price target at $450, a 25.3% increase from its current price.
Gurufocus rated Apple with the business predictability rank of 1 star.
Cognizant Technology (CTSH)
Cognizant Technology provides IT consulting, outsourcing, and technological services to its clients. Its current market capitalization is $23.38 billion, with shares trading around $76.80. Cognizant’s net position was reduced by 25% from Q3 to Q4.
Cognizant has a P/E ratio of 32.40, a P/B ratio of 6.32, and P/S ratio of 4.93. Revenues totaled $4.592 billion in 2010, with a net income at $733 million, yielding a margin of 15.9%. For the same year, they earned $2.37 per share, and had an operating margin of 18.77%. Fundamentally speaking, Cognizant’s growth is riveting, with 10 year growth rates at 42.2% and 45.7% for revenue and earnings respectively.
Kaufman Brothers recently placed a buy rating on Cognizant with a price target of $91. This represents an increase of 18.5% from its current price.
Gurufocus rated Cognizant Technology with the business predictability rank of 5 stars.
For a more detailed look at Stephen Mandel and Lone Pine Capital’s current portfolio and stock picks, please visit: http://www.gurufocus.com/ListGuru.php?GuruName=Steve+Mandel