The Top 5 Buys of Steve Mandel's Lone Pine Capital

Guru's firm releases 1st-quarter portfolio

Author's Avatar
May 22, 2019
Article's Main Image

Lone Pine Capital, the hedge fund founded by Steve Mandel (Trades, Portfolio), revealed seven new positions when it released its first-quarter portfolio last week.

The guru’s Greenwich, Connecticut-based firm picks stocks using a long-short strategy that focuses on bottom-up, fundamental analysis. Using both growth and value methodologies, the firm, whose founder was a former “tiger cub” of Julian Robertson (Trades, Portfolio), is known to not hold positions for very long.

Based on these criteria, the firm’s top five new buys for the first quarter were S&P Global Inc. (SPGI, Financial), Union Pacific Corp. (UNP, Financial), Alphabet Inc. (GOOG, Financial), D.R. Horton Inc. (DHI, Financial) and World Wrestling Entertainment Inc. (WWE, Financial).

S&P Global

Having previously closed a position in S&P Global in the third quarter of 2015, Lone Pine opened a new 3.09 million-share stake. The trade had an impact of 3.80% on the equity portfolio. The stock traded for an average price of $193.28 per share during the quarter.

The New York-based company, which provides ratings and benchmarks within the financial market, has a $54.13 billion market cap; its shares were trading around $220.24 on Wednesday with a price-earnings ratio of 29.52, a price-book ratio of 166.93 and a price-sales ratio of 8.84.

The Peter Lynch chart shows the stock is trading above its fair value, suggesting it is overpriced.

725269969.png

GuruFocus rated S&P Global’s financial strength 6 out of 10. Boosted by comfortable interest coverage, the high Altman Z-Score of 6.64 indicates the company is fiscally stable despite recording a slowdown in revenue per share growth over the last 12 months.

The company’s profitability and growth fared a bit better, scoring a 9 out of 10 rating. In addition to an expanding operating margin and returns that are outperforming competitors, S&P is supported by a strong Piotroski F-Score of 8, which suggests conditions are healthy, and a business predictability rank of one out of five stars. GuruFocus says companies with this rank typically see their stocks gain an average of 1.1% per year.

With its purchase of 1.26% of outstanding shares, Mandel’s firm became the company’s largest guru shareholder. During the quarter, Steven Cohen (Trades, Portfolio) also established a position in the stock, while Spiros Segalas (Trades, Portfolio), Pioneer Investments (Trades, Portfolio) and Murray Stahl (Trades, Portfolio) added to their holdings.

Union Pacific

After selling out of Union Pacific in fourth-quarter 2018, the firm established a new 3.3 million-share stake, giving it 3.24% space in the equity portfolio. During the quarter, the stock traded for an average price of $160.69 per share.

The railroad company, which is headquartered in Omaha, Nebraska, has a market cap of $123.64 billion; its shares were trading around $174.42 on Wednesday with a price-earnings ratio of 21.36, a price-book ratio of 7 and a price-sales ratio of 5.67.

According to the Peter Lynch chart, the stock is overvalued.

1704748829.png

Union Pacific’s financial strength was rated 5 out of 10 by GuruFocus. Although the company has issued approximately $10 billion in new long-term debt over the last three years, it is at a manageable level as a result of adequate interest coverage. In addition, the Altman Z-Score of 3.57 suggests the company is in good fiscal standing.

The company’s profitability and growth scored an 8 out of 10 rating, driven by an expanding operating margin, strong returns that outperform industry peers, consistent earnings and revenue growth and a moderate Piotroski F-Score of 5, which suggests business conditions are stable. It also has a three-star business predictability rank. According to GuruFocus, companies with this rank typically see their stocks gain an average of 8.2% per year.

Of the gurus invested in Union Pacific, investment firm Dodge & Cox has the largest stake with 0.59% of outstanding shares. Jim Simons' (Trades, Portfolio) Renaissance Technologies and Caxton Associates (Trades, Portfolio) also established positions during the quarter, while Segalas, Joel Greenblatt (Trades, Portfolio), Louis Moore Bacon (Trades, Portfolio), Frank Sands (Trades, Portfolio) and Mairs and Power (Trades, Portfolio) beefed up their holdings.

Alphabet

After divesting Alphabet from the portfolio in the fourth quarter of 2018, Mandel’s firm entered a new holding of 444,419 class C shares. The trade expanded the equity portfolio by 3.05%. The shares traded for an average price of $1,120.29 during the quarter.

The California-based tech company, which is the parent company of Google, has an $803.18 billion market cap; its shares traded around $1,154.71 on Wednesday with a price-earnings ratio of 29.07, a price-book ratio of 4.43 and a price-sales ratio of 5.93.

Based on the Peter Lynch chart, the stock appears to be overvalued.

798511331.png

Alphabet’s financial strength and profitability and growth were both rated 9 out of 10 by GuruFocus. Not only does the company have a comfortable level of interest coverage, but its robust Altman Z-Score of 10.07 suggests the company is in good fiscal health.

While the operating margin is in decline, it still outperforms 85% of competitors. The company is also supported by strong returns, consistent earnings and revenue growth, a high Piotroski F-Score of 7 and a 3.5-star business predictability rank. GuruFocus says companies with this rank typically see their stocks gain an average of 9.3% per year.

With 0.44% of outstanding shares, Dodge & Cox is Alphabet’s largest guru shareholder. Other top guru shareholders include PRIMECAP Management (Trades, Portfolio), Chris Davis (Trades, Portfolio), Pioneer, Al Gore (Trades, Portfolio), Segalas, Ruane Cunniff (Trades, Portfolio), Bill Nygren (Trades, Portfolio) and First Pacific Advisors (Trades, Portfolio).

D.R. Horton

The firm invested in 6.56 million shares of D.R. Horton, dedicating 1.59% of the equity portfolio to the stake. During the quarter, shares traded for an average price of $39.07.

The homebuilder, which is headquartered in Arlington, Texas, has a market cap of $16.4 billion; its shares were trading around $43.81 on Wednesday with a price-earnings ratio of 10.74, a price-book ratio of 1.78 and a price-sales ratio of 1.

The Peter Lynch chart suggests the stock is undervalued.

1970088611.png

GuruFocus rated D.R. Horton’s financial strength 6 out of 10. While the company has a low cash-debt ratio of 0.19, the Altman Z-Score of 4.90 suggests it is in good fiscal condition.

The company’s profitability and growth scored an 8 out of 10 rating, driven by an expanding operating margin, strong returns that outperform a majority of industry peers and a high Piotroski F-Score of 7. D.R. Horton also has a one-star business predictability rank.

Lone Pine is now the homebuilder’s largest guru shareholder with a 1.76% stake. Soros, Ken Heebner (Trades, Portfolio) and Caxton also established positions during the quarter. Glenn Greenberg (Trades, Portfolio), Fisher and Tom Gayner (Trades, Portfolio) added to their holdings.

World Wrestling Entertainment

Lone Pine picked up 157,091 shares of World Wrestling Entertainment, allocating 0.08% of the equity portfolio to the holding. The stock traded for an average price of $84.04 per share during the quarter. The firm has since added to its holding.

The Stamford, Connecticut-based media and entertainment company, which is known for broadcasting professional wrestling events, has a $6.04 billion market cap; its shares were trading around $76.91 on Wednesday with a price-earnings ratio of 92.98, a price-book ratio of 19.24 and a price-sales ratio of 7.25.

According to the Peter Lynch chart, the stock is overvalued.

1004277411.png

World Wrestling’s financial strength and profitability and growth were both rated 7 out of 10 by GuruFocus. Although the company has insufficient interest coverage, the robust Altman Z-Score of 11.3 indicates it is in good fiscal standing.

The company is also supported by margins and returns that outperform competitors and a high Piotroski F-Score of 7, which suggests operating conditions are healthy. The one-star business predictability rank, though, is on watch.

Simons’ firm currently has the largest stake in World Wrestling Entertainment with 3.67% of outstanding shares. Lee Ainslie (Trades, Portfolio) also established a position in the stock during the first quarter, while Soros and Caxton expanded their holdings.

Additional trades and portfolio composition

During the quarter, Lone Pine also invested in Canadian e-commerce company Shopify Inc. (SHOP, Financial) and San Francisco-based financial services company Square Inc. (SQ, Financial).

The firm’s $17.11 billion equity portfolio, which is composed of 29 stocks, is heavily invested in the technology and consumer cyclical sectors.

Disclosure: No positions.

Read more here:

Not a Premium Member of GuruFocus? Sign up for a free 7-day trial here.