Lone Pine Capital's 13F (Stephen Mandel Jr.) ~ market folly

Tuesday, May 20, 2008

Lone Pine Capital's 13F (Stephen Mandel Jr.)

(Note: Before reading this update, make sure you check out the preface to the series I'm doing on Hedge Fund 13F's HERE.)

The second hedge fund I'm covering in depth this week is Lone Pine Capital, ran by Stephen Mandel Jr. Lone Pine is an $8 Billion fund that has returned over 25% annually ever since its inception in 1997. Why is Mandel worth following you might ask? Well, he served as a consumer/retail analyst for Tiger Management back in the day for legendary investor Julian Robertson. Robertson's proteges/right-hand men have been nicknamed the "Tiger Cubs" and many have started their own funds. So, not only has Mandel learned from one of the best, but he has put up some very solid returns himself. Although Mandel was taught in the ways of finding undervalued companies, his funds typically employ a strategy of selecting stocks of solid companies with good management that are trading below their intrinsic value. Just this past year 1 of his funds was up 34% before fees while another was up 32% before fees. His track record speaks for itself. And, not to mention, he learned from one of the greats in Julian Robertson.

So, let's get right down to it... what was Lone Pine up to this past quarter? The following is Lone Pine Capital's current holdings as of March 31st 2008 as released in their most recent 13F filing with the SEC. I've compared the positions in this most recent 13F to last quarter's 13F and here's what the breakdown looks like:

New Positions: (in no particular order)
CB Richard Ellis (CBG) 11,841,207 shares
Illumina (ILMN) 2,401,239 shares
Monsanto (MON) 2,441,900 shares
NY Times (NYT) Puts (100,000 of them)
Sears (SHLD) Puts (986,800 of them)
Teradata (TDC) 9,254,453 shares
Visa (V) 3,900,000 shares from the i.p.o.
XTO Energy (XTO) 8,069,313 shares

Added to:
Apple (AAPL) increased position by 381% (2,314,005 more shares)
CME (CME) increased position by 32% (144,506 more shares)
Deltek (PROJ) increased position by 18% (343,279 more shares)
Google (GOOG) increased position by 80% (721,474 more shares)
Infosys (INFY) increased position by 79% (3,070,924 more shares)
Nutrisystem (NTRI) Puts, increased put position by 278%
Sandridge Energy (SD) increased position by 53% (3,502,690 more shares)

Reduced Positions:
America Movil (AMX) reduced by 21% (sold 2,783,867 shares)
Brookfield Asset Mgmt (BAM) reduced by 26.5% (sold 3,037,700 shares)
Dicks Sporting Goods (DKS) reduced by 11% (sold 602,404 shares)
EMC (EMC) reduced by 25% (sold 3,622,624 shares)
Fastenal (FAST) reduced by 11% (sold 884,436 shares)
Mastercard (MA) reduced by 7% (sold 70,045 shares)
Priceline (PCLN) reduced by 34.4% (sold 1,075,046 shares)
Qualcomm (QCOM) reduced by 19% (sold 3,126,665 shares)
SAIC (SAI) reduced by 3% (sold 238,680 shares)
Southwest Energy (SWN) reduced by 27.7% (sold 2,829,432 shares)

Removed Positions:
Positions Lone Pine Capital sold out of completely
American Eagle Outfitters (AEO)
Burlington Northern (BNI)
Career Education (CECO)
Carmax (KMX)
Coach (COH)
Eastman Kodak (EK)
Fidelity National Info (FIS)
Intercontinental Exchange (ICE)
Overstock (OSTK) Puts
Pharmerica (PMC)
Schlumberger (SLB)
Sina Corp (SINA)
Vulcan Materials (VMC)
WNS Holdings (WNS)

Positions with no change:
Bunge (BG) Puts
Eagle Materials (EXP)
SRA International (SRX)

Top 10 holdings by % of portfolio:
1. GOOG (Top Holding)
2. AMX
4. XTO
6. SD
8. CME
9. MON
10. CBG


Breakdown: Right off the bat I noticed two themes with Lone Pine's additions to the portfolio this quarter: technology and energy. Mandel started a new position in XTO this past quarter and brought it all the way up to the #4 holding in the fund. This was obviously a smart maneuver as XTO has exposure to both oil and natural gas, which are both roaring. Next, we see that he massively added to his AAPL position, by 381%, bringing it to the fund's 5th largest holding. He also added a bit more to his already top holding of GOOG. And, he obviously was buying on the big dip we just saw in that name. MON was a new addition to the portfolio and he added pretty big, making it the 9th largest holding in the fund and it appears this is the way he wishes to play the secular growth in agriculture (I prefer fertilizer myself, but that's a whole nother conversation). Also, interestingly, he added CBG, a commercial real estate services firm and brought it up to the 10th largest holding in the fund. This move puzzled me a little bit, as numerous people think commercial real estate will continue to suffer. Maybe this was a trade or maybe he just saw true value here... only time will tell. He added to his CME position some more (by 32%) and brought it up to the 8th largest holding in the fund. I like the exchanges here, but CME in particular could face major headwinds if the government decides to get involved as rumored. (I like NYX as an exchange play). Notably added to also was his position in INFY. This is significant only because I saw numerous hedge funds add to this name last quarter and so I had to mention it (more on that in the posts to come as well). Mandel has aggressively added to his put position in NTRI, so you might want to look at that as a good short candidate. Also, Lone Pine added to SD, which I pointed out in the last post, mentioning that Boone Pickens was one of many others who had added this name seemingly out of nowhere. Its a natural gas play so it makes sense, and it looks like its definitely time to do some research on this company to see what exactly all these funds are seeing.

Mandel also reduced his AMX position a tad, but it looks just to be profit taking, as it is still easily the #2 fund holding and a favorite of many hedge funds. The same can be said for QCOM... some profit taking to free up cash to put into other tech names. Still like QCOM though as it is in practically all the hedge funds' portfolios I follow. He sold off a little bit of MA as well, undoubtedly profit taking as that name has had a monstrous run, but should easily continue to perform as the world switches from cash to charging with plastic. Mandel's drastic reduction of his SWN position makes me think that he was beginning to swap SD in place of SWN, or he just wanted added diversification in the natural gas space.

Notably, Lone Pine sold completely out of AEO and they seem to have given up on the specialty retailer, waving the white flag in the dreaded consumer discretionary sector. I actually liked AEO due to their compelling valuations here (stock has been absolutely trashed). But, I will admit it was Lone Pine (& a few other funds) presence in the name that gave me added confidence. This was obviously a long term hold name, but it seems as if they have dumped it during these tough times to put the money in sectors that are working (tech, energy). Mandel also sold out of his large position in COH, further assuring us that he is done with specialty retail for now. Lastly, he completely scaled out of his KMX. I believe he kind of followed Warren Buffett into this name to begin with and then he realized that a) no one is really spending big money on cars in this economy and b) the people shopping at Carmax are not necessarily of the best credit quality. So, he was in and out of that name pretty fast.

My personal favorites out of Lone Pine's portfolio: AMX, AAPL, QCOM, XTO, SD, ILMN, INFY, MA

Most interesting move(s): 1. Getting into commercial real estate with CBG. 2. Adding to SD along with a ton of other hedge funds (they obviously all talked to each other about this one). 3. Selling completely out of all their (specialty) retail names (AEO, COH, KMX)

Note: Of their positions, I'm long AMX, QCOM, AAPL, SD, ILMN, V, INFY, MA

Tune in tomorrow when I go over another protege of Tiger Management legend Julian Robertson: John Griffin's Blue Ridge Capital.


Mark said...

I look forward to the day you break down the holdings of my hedge fund. Now I need to spend a few years coming up with a spiffy name. Like Many Oaks.... Lone Pine.. Many Oaks...? (insert laugh track here) Egad.

madhatter said...

haha wow. i look forward to that day as well!

what's funny is that not only is the firm named after a tree, but each different fund they run is named after a tree as well. clearly the man has a fondness for trees haha

Anonymous said...

The tree thing comes from his dartmouth days - in the college seal there appears a "lone pine"