We have found that the most popular small cap stocks among hedge funds, as determined by 13F filings, outperform the S&P 500 by an average of 18 percentage points per year (read more about imitating hedge funds’ favorite small cap stocks). 13Fs can also be used to evaluate a hedge fund manager’s favorite stocks, including in different industries or sectors of the economy; blindly following these picks isn’t wise, but they can serve as a good source of initial ideas for further research. Billionaire and Tiger Cub Stephen Mandel’s Lone Pine Capital filed its 13F for the fourth quarter of 2012 last month (see the full list of stocks Lone Pine reported owning). Here are our thoughts on its five largest holdings by market value in tech stocks:
The fund’s top pick was Google Inc (NASDAQ:GOOG), with Lone Pine reporting a position of 1.6 million shares (up 45% from the end of September). Google Inc (NASDAQ:GOOG) made our list the most popular stocks among hedge funds for the fourth quarter of 2012 (find more stocks hedge funds loved). Thanks to a recent rally in the stock price, Google Inc (NASDAQ:GOOG) currently trades at 26 times trailing earnings. We do expect net income to rise as Motorola Mobility Holdings is integrated and the core business grows as well, but it’s possible that the company’s prospects are already well accounted for in the current price.
Lone Pine increased its stake in Priceline.com Inc (NASDAQ:PCLN) by 25% to a total of 1.8 million shares. Priceline is a common Tiger Cub pick; John Griffin’s Blue Ridge Capital was one of the many such funds which owned the stock at the end of December. The company is planning to buy rival Kayak Software Corp (NASDAQ:KYAK) to increase its market leadership position. Priceline is another stock with a trailing earnings multiple in the mid-20s, but the company experienced revenue and earnings growth of over 20% last quarter compared to the fourth quarter of 2011 and so it may be a good growth stock.
Find three more tech picks Mandel likes, including one Warren Buffett was buying last quarter: