Stephen Mandel's Lone Pine Capital Buys a Basket Full of Apple (AAPL) ~ market folly

Wednesday, November 18, 2009

Stephen Mandel's Lone Pine Capital Buys a Basket Full of Apple (AAPL)

This is the third quarter 2009 edition of our hedge fund portfolio tracking series. If you're unfamiliar with tracking hedge fund movements or SEC filings, check out our series preface on hedge fund 13F filings.

The third hedge fund we're covering is Stephen Mandel's Lone Pine Capital. The hedge fund, named after a historical lone pine tree at Mandel's alma mater Dartmouth College, has an assets under management (AUM) base well in excess of $8 billion. Mandel's fund had returned 25% annually from inception in 1997 up until the crisis. 2008 was a bad year for them and definitely put a chink in their armor, so now they're looking to get back to winning ways. We track Mandel due to his excellent stockpicking skills as he runs a long/short equity fund that is easy to track. They seek out companies trading below intrinsic value and they also like to see good management teams.

We've already covered some of Lone Pine's recent activity when we noted that they had started a new position in MSCI (MXB) and also a new stake in Green Mountain Coffee Roasters (GMCR). While we're covering their holdings in US equities in the following post, we've also covered their UK positions as well.

Keep in mind that the positions listed below were their long equity, note, and options holdings as of September 30th, 2009 as filed with the SEC. We don't cover every single portfolio maneuver, as we instead focus on all the big moves. All holdings are common stock unless otherwise denoted.

Some New Positions (Brand new positions that they initiated last quarter, starting with the largest new position first and working down):
Apple (AAPL)
Green Mountain Coffee Roasters (GMCR)
Cemex (CX)
Walgreen (WAG)
FLIR Systems (FLIR)
Schein Henry (HSCI)
Walter Industries (WLT)
Goodrich (GR)
Citrix (CTXS)
Huntington Bancshares (HBAN)
Popular (BPOP)
Estee Lauder (EL)
Dr Pepper Snapple (DPS)
Etrade Financial (ETFS)

Some Increased Positions (Positions they already owned but added shares to)
Discovery Communications (DISCA): Increased by a massive 24,581% (they held relatively few shares in the quarter prior)
Sears Holdings (SHLD) Puts: Increased by 207%
Southwestern Energy (SWN): Increased by 197.6%
Mindray Medical (MR): Increased by 96.6% (but still a relatively small portion of their portfolio)
Vistaprint (VPRT): Increased by 40%
JPMorgan Chase (JPM): Increased by 30.4%
Liberty Media (LMDIA): Increased by 28.9%
Hewlett Packard (HPQ): Increased by 16.4%
Pactiv (PTV): Increased by 9.4%
Monsanto (MON): Increased by 7.2%

Some Reduced Positions (Some positions they sold shares in)
Philip Morris International (PM): Reduced by 86.5%
Fomento Economico (FMX): Reduced by 86.5%
Coach (COH): Reduced by 62%
America Movil (AMX): Reduced by 57.4%
Deltek (PROJ): Reduced by 43.8%
Coca Cola (KO): Reduced by 38%
Vivendi (VIV): Reduced by 35%
Smithfield Foods (SFD): Reduced by 26.6%
Qualcomm (QCOM): Reduced by 26.2%
McDonald's (MCD): Reduced by 24.7%
Priceline (PCLN): Reduced by 20.9%

Removed Positions (Positions they sold out of completely)
Nike (NKE)
Google (GOOG)
Ecolab (ECL)
Urban Outfitters (URBN)
Union Pacific (UNP)
XTO Energy (XTO)
MSC Industrial (MSM)
Sandridge Energy (SD)
Mead Johnson (MJN)
Fifth Third Bancorp (FITB)
Suntrust Banks (STI)
Progressive (PGR)

Top 15 Holdings by percentage of assets reported on 13F filing

  1. JPMorgan Chase (JPM): 8.91%
  2. Monsanto (MON): 8.07%
  3. Apple (AAPL): 7.12%
  4. Qualcomm (QCOM): 6.55%
  5. Hewlett Packard (HPQ): 5.78%
  6. McDonalds (MCD): 4.51%
  7. SPDR Gold Trust (GLD) Calls: 4.24%
  8. Priceline (PCLN): 3.81%
  9. Visa (V): 3.79%
  10. Green Mountain Coffee Roasters (GMCR): 3.49%
  11. Strayer Education (STRA): 3.47%
  12. Mastercard (MA): 3.00%
  13. America Movil (AMX): 2.73%
  14. Southwestern Energy (SWN): 2.68%
  15. Coca Cola (KO): 2.31%

The most noticeable thing about Lone Pine's portfolio is the gigantic stake in Apple (AAPL) they started. As of their last 13F filing (Q2), they did not hold a stake. So, in that three month period, they accumulated over 3 million shares and brought it up to their third largest holding in US equities. The second notable new position was the one they initiated in Green Mountain Coffee Roasters (GMCR), but we had already covered that as per their 13G filing on the name. JPM was their largest holding as of Q3 as they boosted their position in it by 30%.

In terms of positions they already held but increased, they definitely boosted their Discovery Communications (DISCA) stake in a big way. This is mainly because they held so few shares in Q2, but it's still worth highlighting. We also want to point out they ramped up their stake in Sears (SHLD) puts by over 200%, as it appears they are bearish on the name.

Their most notable sale was in shares of their longtime favorite America Movil (AMX). As we've detailed in the past, numerous of the 'Tiger Cub' hedge funds had been invested in AMX but suddenly started to sell it off. That is, all except Lone Pine, who was adding to their position in quarters prior. Now this quarter marks the first time in a while we have seen them sell shares of AMX in a big way, cutting 57% of their position. It had previously been their fourth largest long position in US equities and we'll have to keep an eye on this to see what they do with it in the future.

Also worth pointing out is that Lone Pine's portfolio is littered with a bevy of other sales. They sliced their stakes in Philip Morris International (PM) and Fomento Economico (FMX) both by over 85% and they also cut Coach (COH) by over 60%.

*Update: Lone Pine just filed an amended 13F with the SEC and actually disclosed that they still did own 2,499,729 shares of Vistaprint (VPRT) on September 30th, 2009. You can read our full update on the situation here. Originally, VPRT did not appear on their 13F so it looked as if they had sold out of the position entirely just months after boosting their stake back in August. But, in the end, it appears that they did not sell out of VPRT after all. What's interesting to note about this company specifically though, is that VPRT receives around 40% of their net from referral fees that they earn from forwarding customers' credit card information to third parties. The Senate commerce committee recently had a hearing on these practices following a 6 month investigation. So, VPRT's revenue stream could possibly be in jeopardy, but we'll have to wait and see how that plays out. In the end, Lone Pine did still own shares of the company as of September 30th, 2009 and actually increased their position by 40% on a quarter over quarter basis.

Lastly, given all the buzz about gold, it's also worth noting that they still retain their gold position via calls on SPDR Gold Trust (GLD); the position was unchanged and represents a decent chunk of their portfolio.

Assets from the collective holdings reported to the SEC via 13F filing were $8 billion this quarter compared to $7.37 billion last quarter, so a slightly noticeable tick to the upside. Please keep in mind that when we state "percentage of portfolio," we are referring to the percentage of assets reported on the 13F filing. Since these filings only report longs (and not shorts or cash positions), the percentages are skewed. Realistically, the position percentages are more watered down in their actual hedge fund portfolio.

This is just one of the 40+ prominent funds that we'll be covering in our Q3 2009 hedge fund portfolio series. We've already covered Seth Klarman's Baupost Group and Bill Ackman's Pershing Square, and this is just the beginning of the hedge fund portfolio updates, so check back daily.

blog comments powered by Disqus