What We're Reading ~ 9/4/19

Certain to Win: The strategy of John Boyd, applied to business [Chet Richards]

The commoditization of information [Geoff Yamane]

Position sizing: why conviction matters [Intrinsic Investing]

The problem with believing what we're told [WSJ]

How a Canadian firm has taken on Wall Street's private equity titans [Economist]

Research on the financial performance of collectibles [Alpha Architect]

Peloton is a phenomenon: can it last? [NYTimes]

A skeptical look at Peloton churn [Inquisitive Investor]

Peloton bikes are the real deal [The Margins]

How Amazon's shipping empire is challenging UPS & FedEx [WSJ]

Amazon's next-day delivery has brought chaos and carnage to streets [BuzzfeedNews]

The man behind the biggest beauty brands in the world [Coveteur]

Aston Martin tried to replicate Ferrari's IPO success but shares are down 75% [Fortune]

On the importance of broadcasting income to European football clubs [Swiss Ramble]

5 lessons from Microsoft's antitrust woes by people who lived it [NYTimes]

What We're Reading ~ 6/7/17

Investing between the lines: how to make smarter decisions decoding CEO communication [Rittenhouse]

Honored to be included in list of 50 of the best investing blogs [Acquirers Multiple]

Interview with Blackstone's Steve Schwarzman [Bloomberg]

What do you know with a high degree of confidence about investing? [Abnormal Returns]

Why it's so hard to admit you're wrong [NYTimes]

Inversion: the crucial thinking skill nobody ever taught you [James Clear]

Is Sephora killing the department store beauty counter? [Consumerist]

Estee Lauder vs L'Oreal: who's winning beauty's arms race? [Business of Fashion]

The economics of eSports [Digits to Dollars]

Profile of the founders of Atlassian (TEAM): The Wizards From Oz [Forbes]

Profile of SoulCycle's CEO [Fortune]

How the QR code has forever changed China's social habits [SCMP]

An introduction to LIDAR: the key self-driving car sensor [Voyage Auto]

Ten myths about machine learning [Medium]

Why Amazon is eating the world [Techcrunch]

On retail carnage: perception vs reality [Peridot Capitalist]

US unemployment hits lowest level since 2001 [CNN Money]

US home prices rising 2 times faster than wages [KSL]

Contrafund's Will Danoff Bullish For 2013: What Stocks He Likes

Will Danoff is manager of Fidelity's Contrafund and he recently sat down with Fidelity Viewpoints to share his outlook for 2013.  He's bullish and so we wanted to highlight what stocks he's looking at.


On Why He's Bullish This Year

"I’m bullish. Stocks are relatively cheap, and U.S. companies have become much leaner. Management teams were worried about the environment, so they were conserving cash and allocating capital prudently. M&A activity was down about 20% in 2012. Boards were saying, 'We’re not going for the long ball. We’re going to focus on maintaining lean inventories, low capital spending, and tight expenses.' As a result, companies are nicely profitable and generating a lot of cash.

So looking forward, I’m hopeful that we’re going to have modest top-line growth that will lead to decent earnings-per-share growth, good free-cash-flow yields, and total returns that may be a lot better than what we will see from cash and bonds."

He also went on to say that,

"My guess is a year from now the economy’s going to improve and stocks are going to be a good place to be. I’m bullish. So, I think if you’re in cash, you have to really think hard about it and say, 'How much cash do I really need?'"

This is a concept that's been talked about by many managers, including Bridgewater's Ray Dalio who said cash will move into 'stuff' in 2013.  David Tepper of Appaloosa Management has also been quite bullish.


What Stocks He Likes

Danoff notes that the key to his strategy has been identifying the best companies in each industry.  There's a few themes/industries he likes this year, and they all seem hinged on an economic recovery: housing, manufacturing, and industrials.

In particular, the Contrafund manager says he's finding most opportunities that should benefit from more competitive US manufacturing (companies are moving plants back from overseas).

He also likes US companies with lots of international exposure, like Colgate-Palmolive (CL), Estee Lauder (EL), and Starbucks (SBUX).

In tech, he likes internet plays such as Google (GOOG), Facebook (FB), and Yahoo (YHOO).  He also is bullish on the software as a service trend, fancying the likes of Workday (WDAY), Salesforce.com (CRM), and Concur (CNQR).


On Tech Giants Google (GOOG) & Apple (AAPL)

These two tech giants are some of his fund's largest holdings.

Danoff's take on Google: "The stock has done basically nothing since 2007, but the earnings have roughly doubled, and the company is generating a huge amount of free cash flow—we estimate the stock is producing roughly a 9% free-cash-flow yield. And net of the cash, the stock has been trading around 13 times earnings while core revenues have been growing almost 20% annually. So I have believed that Google could continue to grow and had the potential for P/E (price-to-earning multiple) expansion."

We've also highlighted how Ricky Sandler's hedge fund Eminence Capital has been bullish on Google as well as it's their largest position at around a 9% position for them.

Danoff also notes that AAPL has been a good holding for his fund as the company's been generating a ton of free cash flow.  The problem is that most of it is overseas (and it's a massive amount of money too) and he also pointed out that competition has intensified in the smartphone and tablet markets.  You can read more of Danoff's outlook here.

Hedge Fund Lone Pine Capital Boosts Stake in Estee Lauder (EL)

Yesterday after the market close, Stephen Mandel's hedge fund firm Lone Pine Capital filed a 13G on Estee Lauder (EL). This filing discloses activity as of June 17th, 2010 and reveals that Lone Pine has a 5.0% ownership stake in EL with 6,105,520 shares. This is a sizable increase in their position from when we last looked at Lone Pine's portfolio. Back on March 31st, Mandel's hedge fund owned 3,498,677 shares. Over the course of the past three months, Lone Pine has added 2,606,843 more shares (a 74.5% increase in their position size). In terms of other recent portfolio activity from Mandel, we noted he started a new position in Longtop Financial Technologies (LFT) a few months ago as well.

The interesting thing to note about their Estee Lauder position is that they've been gradually building it up over time. Looking from the fourth quarter in 2009 to the first quarter of 2010, Lone Pine had previously boosted their position by 14%. And before that (from the third quarter of '09 to the fourth quarter of '09) they had tripled their stake. And now, with this most recent increase, it's obvious they have conviction in this pick. This stock becomes all the more interesting when you consider some other hedge funds are bullish on shares of EL as well.

As we've covered previously, David Stemerman's hedge fund Conatus Capital owns Estee Lauder as one of their top five US equity longs. Given his concurrent investment, it should come as no surprise that before founding Conatus, Stemerman previously worked at Lone Pine. So, he has carried conviction in this stock over to his new firm which launched last year with $2.3 billion. Consumer companies are essentially Lone Pine's specialty and Estee Lauder is the perfect example of this mold. Given that Lone Pine has continued to ramp up its stake, it will be intriguing to see whether or not Conatus has done the same.

Last year, Lone Pine's main fund (Lone Cypress) was up 17.7% as detailed our hedge fund performance numbers summary. Their Lone Kauri Fund was up 12.1%, their Lone Cascade Fund was up 44.4%, and their Lone Dragon Pine Fund was up 72.9%. For other investment ideas from Mandel's hedge fund, we previously saw that they are bullish on education plays as well.

Taken from Google Finance, Estee Lauder is "a manufacturer and marketer of skin care, makeup, fragrance and hair care products. Its products are sold in over 140 countries and territories under the brand names, which include Estee Lauder, Aramis, Clinique, Origins, MzAzC, Bobbi Brown, La Mer and Aveda."

Head to Lone Pine Capital's portfolio to see what else Stephen Mandel has invested in.

David Stemerman's Hedge Fund Conatus Capital Favors Tech: 13F Filing

(This post is part of our series on tracking hedge fund portfolios. If you're unfamiliar with tracking investments they disclose via SEC filings, check out our series preface on hedge fund filings.)

Next up is David Stemerman's hedge fund Conatus Capital. Stemerman founded his firm last year with $2.3 billion after he left Stephen Mandel's Lone Pine Capital. Conatus places an emphasis on bottom-up individual stockpicking via a long/short equity strategy. Stemerman's firm focuses on the quality of the business and the quality of the associated management team. They seek short positions by identifying companies that are seeing increased competition from low-cost alternatives and those that are being displaced by new technology. We've previously taken a more in-depth look at Conatus' investment process for those interested. For 2009, Stemerman's firm finished up 19.16% as detailed in our hedge fund performances post.

The positions listed below were their long equity, note, and options holdings as of March 31st, 2010 as filed with the SEC. All holdings are common stock unless otherwise denoted:


Brand New Positions
JPMorgan Chase (JPM)
Union Pacific (UNP)
American Tower (AMT)
US Bancorp (USB)
FMC Technologies (FTI)
City National (CYN)
Mead Johnson Nutrition (MJN)
Sotheby's Holdings (BID)
Charles Schwab (SCHW)
Webmd Health (WBMD)


Increased Positions
BHP Billiton (BHP): Increased position size by 103%
Ctrip.com (CTRP): Increased by 94.4%
Wells Fargo (WFC): Increased by 91.8%
Amazon.com (AMZN): Increased by 84%
Schlumberger (SLB): Increased by 73%
Bed Bath & Beyond (BBBY): Increased by 58.5%
Visa (V): Increased by 54.9%
Goldman Sachs (GS): Increased by 52.5%
NetApp (NTAP): Increased by 48.5%
Urban Outfitters (URBN): Increased by 38.4%
Google (GOOG): Increased by 35%
Polo Ralph Lauren (RL): Increased by 35%
Walter Energy (WLT): Increased by 29.4%
Salesforce.com (CRM): Increased by 25.9%
Citrix Systems (CTXS): Increased by 23.6%
Crown Castle (CCI): Increased by 20.8%


Reduced Positions
Priceline.com (PCLN): Reduced position size by 34.4%


Positions They Sold Out of Completely
Abercrombie & Fitch (ANF)
Credicorp (BAP)


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

1. Apple (AAPL): 5.6%
2. Express Scripts (ESRX): 4.4%
3. Google (GOOG): 3.9%
4. Estee Lauder (EL): 3.9%
5. Cognizant Technologies (CTSH): 3.9%
6. Amazon.com (AMZN): 3.9%
7. Walter Energy (WLT): 3.9%
8. Cisco Systems (CSCO): 3.8%
9. Medco Health (MHS): 3.8%
10. Schlumberger (SLB): 3.4%
11. Wells Fargo (WFC): 3.3%
12. Visa (V): 3.3%
13. Covidien (COV): 3.2%
14. JPMorgan Chase (JPM): 2.8%
15. Bed Bath & Beyond (BBBY): 2.8%


As you can see, Conatus Capital did little in the way of selling in the first quarter of 2o10. In fact, they were quite active on the buying side, adding to numerous existing stakes like BHP Billiton, Ctrip.com, Wells Fargo, and Amazon.com. They also started brand new stakes in JPMorgan Chase, Union Pacific, and American Tower among others. Given the recent market decline, it will be intriguing to see next time around whether Conatus was reducing long exposure or if they continued to add.

Since Stemerman previously plied his trade at Stephen Mandel's Lone Pine Capital, it should come as no surprise that this portfolio has obvious similarities to Lone Pine's. While the typical 'hedge fund favorite stocks' like Apple and Amazon are present, both Conatus and Lone Pine are bullish on shares of Estee Lauder and Cognizant Technologies, names we don't see as frequently in hedge fund portfolios.

Lastly, we want to point out the three sectors Conatus seems to like the most: technology, health, and energy. They own the typical tech bellwethers in Apple, Google, Cisco, and Amazon. But at the same time, they're focusing on niche segments like cloud computing. Shifting to pharmacy benefit management companies (PBMs), Conatus has a large position in Express Scripts, a company we saw fellow hedge fund Viking Global heavily favors. Additionally, Conatus is long Medco Health as their ninth largest US equity long. In energy, Conatus likes Schlumberger and Walter Energy. In the end though, technology is by far and away the overwhelming theme as five of their top ten positions are in tech.

As we've previously detailed, Conatus is bullish on cloud computing and this is evident from their positions in VMWare, Citrix Systems, and NetApp. And as we've also highlighted, hedge funds favor wireless tower stocks and Conatus is no different: they own all three majors in American Tower, Crown Castle, and SBA Communications.

Assets reported on the 13F filing were $2.6 billion this quarter. Data from the SEC is aggregated and sorted automatically by Alphaclone, our source for hedge fund tracking, replicating, and performance backtesting (Market Folly readers can receive a special free 30 day trial). Remember that these filings are not representative of the hedge fund's entire base of AUM.

This post is part of our daily hedge fund portfolio tracking series. We've already detailed activity from numerous managers so click the links below to be taken to the respective portfolio updates: Seth Klarman's Baupost Group, Warren Buffett's Berkshire Hathaway, Stephen Mandel's Lone Pine Capital, and Bill Ackman's Pershing Square, David Einhorn's Greenlight Capital, Eddie Lampert's RBS Partners, David Tepper's Appaloosa Management, Mohnish Pabrai's Investment Fund, John Griffin's Blue Ridge Capital, Lee Ainslie's Maverick Capital, Bruce Berkowitz's Fairholme Capital Management, Andreas Halvorsen's Viking Global, Dan Loeb's Third Point, John Paulson's hedge fund Paulson & Co, Chase Coleman's Tiger Global, Roberto Mignone's Bridger Management, and Phil Falcone's Harbinger Capital Partners. Be sure to check back daily for new hedge fund updates.