Steve Mandel (Trades, Portfolio)’s Lone Pine Capital recently released its 13F report for the third quarter of 2022, which ended on Sept. 30.
A former “tiger cub” who was mentored by the legendary Julian Robertson (Trades, Portfolio), Mandel started Lone Pine Capital in 1997. The Greenwich, Connecticut-based firm picks stocks using a long-short strategy that focuses on bottom-up, fundamental analysis and combines growth and value strategies. The firm has a relatively high turnover rate, as some of its trades are short-term bets.
According to its latest 13F filing, the firm’s top buys for the recent quarter were undervalued tech stocks Autodesk Inc. (ADSK, Financial), TransDigm Group Inc. (TDG, Financial) and PayPal Holdings Inc. (PYPL, Financial).
Investors should be aware that 13F reports do not provide a complete picture of a guru’s holdings. They include only a snapshot of long equity positions in U.S.-listed stocks and American depository receipts as of the quarter’s end. They do not include short positions, non-ADR international holdings or other types of securities. However, even this limited filing can provide valuable information.
Autodesk
The firm took a new stake worth 2,221,479 shares in Autodesk (ADSK, Financial) after selling out of its previous holding in the stock in the first quarter of 2021. The stock now takes up 3.91% of the equity portfolio at the quarter’s average share price of $202.07.
Autodesk is a global leader in 3D design, engineering and construction software. Its products are used to create digital 3D models for a wide variety of applications, including manufacturing, engineering, 3D printing, entertainment, robotics and even augmented reality.
As of Nov. 21, shares of Autodesk traded around $206.24 for a market cap of $44.59 billion and a price-earnings ratio of 81.65. The GF Value chart rates the stock as significantly undervalued.
There’s plenty of near-term risk for Autodesk stock because the company has lowered guidance for its current fiscal year 2023 more than once (its fiscal year ends in January). However, the company’s historical growth has been solid, as shown in the chart below (ignore the huge earnings spike in early 2021, which was due to accounting shenanigans). Moreover, it has a strong competitive moat due to its 3D design software leadership, vertical integration and high switching costs.
TransDigm Group
Lone Pine also bought 737,523 shares of TransDigm Group (TDG, Financial), initiating a new stake after selling out of its previous holding in the stock in the fourth quarter of 2021 and giving the stock a weight of 3.65% in the equity portfolio. During the quarter, shares averaged $596.69 apiece.
TransDigm is a manufacturing company that designs, engineers and produces components, systems and subsystems for the commercial and military aerospace sectors. The Ohio-based company is a global leader in its field, with dozens of locations throughout North America, Europe and Southeast Asia.
Shares of TransDigm traded around $614.98 on Nov. 21 for a market cap of $33.57 billion and a price-earnings ratio of 45.94. While the stock is trading below its GF Value of $651.86, it’s not enough of a discount to earn more than a fairly valued rating from the GF Value chart.
TransDigm’s main competitive advantage comes from the strength of its commercial aftermarket business, which focuses on components that are patent-protected, highly specialized or difficult to manufacture. Nearly 90% of sales come from proprietary products. The main weakness that critics point to is the company’s levered balance sheet, but the company’s return on invested capital is consistently higher than its weighted average cost of capital, indicating it is putting its debt to good use creating value for shareholders.
PayPal Holdings
The firm upped its stake in PayPal Holdings (PYPL, Financial) by 4,005,315 shares for a total holding of 8,294,340 shares, adding 3.25% to its weight in the equity portfolio. Shares traded for an average price of $88.67 during the quarter.
PayPal is a worldwide online payments system operator that increases the flexibility, accessibility and security of various methods of electronic transactions. Users can more safely and easily make online payments, receive money or set up a merchant account.
At $80.90 per share after a steep decline this year, PayPal’s market cap stands at $91.92 billion while its price-earnings ratio is 40.93. The GF Value chart rates the stock as significantly undervalued.
Investors worry that parent company eBay’s (EBAY, Financial) long-anticipated transition away from PayPal to its own payment system could signal the end of an era for PayPal as more major online retailers might create their own payment systems. Additionally, since payments using PayPal skew toward the discretionary category, it could face a steeper decline than peers in recessionary conditions. With this company, it is worth keeping an eye on new competition as well as the trend of the company’s operating margin and net margin, as sustained margin contraction might signal trouble.
See also
Lone Pine’s other notable trades for the quarter included exiting ServiceNow Inc. (NOW, Financial) and Alphabet Inc. (GOOGL, Financial) and slashing its Meta Platforms Inc. (META, Financial) holding by 40%.
As of the quarter’s end, Lone Pine held shares of 31 common stocks in an equity portfolio valued at $10.61 billion. The turnover for the quarter was 18%. Its top holding was Workday Inc. (WDAY, Financial) with 7.20% of the equity portfolio, followed by Amazon.com Inc. (AMZN, Financial) with 7.12% and PayPal with 6.73%.
In terms of sector weighting, the firm was most invested in technology, consumer cyclical and financial services stocks.
