Stephen Mandel worked at legendary investor Julian Robertson’s Tiger Management until 1997 when he left to launch Lone Pine Capital. Lone Pine now has over $15 billion in assets under management and Mandel himself has become a billionaire. Thanks to 13F filing requirements, we can look at the set of stocks which the fund owned and which have low PEG ratios- a valuation metric which considers both the standard P/E multiple and the expected growth rate of earnings- to come up with a list of high upside potential stock picks from Mandel’s portfolio. Obviously many of these companies will miss earnings projections, as we are working with estimates from Wall Street analysts, but the PEG ratio is still a guide to potential and investors can do further research on any intriguing names anyway. Here are five stocks with low PEG ratios that Lone Pine reported owning in its most recent 13F filing (see the rest of Mandel’s stock picks):
Even though Lone Pine cut its stake in Apple Inc. (NASDAQ:AAPL) during the third quarter of 2012, the fund still owned a little more than 800,000 shares and Apple was one of its ten largest holdings. Apple Inc. (NASDAQ:AAPL) trades at only 12 times trailing earnings, and with the Street expecting solid growth numbers the PEG ratio is only 0.5. We wouldn’t be that optimistic, but we like Apple Inc. (NASDAQ:AAPL)’s position in the tablet and smartphone markets and think that even with modest growth rates the stock would be undervalued at the current price. Apple was the most popular stock among hedge funds during the third quarter (see the full top ten list).
NetEase, Inc (NASDAQ:NTES), a $5.7 billion market cap online gaming and Internet portal in China, was another of Mandel’s picks with Lone Pine reporting a position of 6.2 million shares. Revenue and net income were about flat in the third quarter compared to the same period in 2011, but with the stock trading so cheaply- the trailing P/E is only 10- sell-side growth projections bring the PEG ratio down to 0.8. Orbis Investment Management, which is managed by William Gray, owned over 17 million shares of the stock. It’s possible that worries about the reliability of Chinese companies’ financials are holding the stock price down, and so NetEase might be worth a very close look.