Billionaire Stephen Mandel Likes Charter Communications

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One way to incorporate the views of hedge fund managers and other successful investors is by looking at 13F filings, either from an individual fund that has proven to be a strong performer or by pooling filings from a number of funds to look for a consensus view. For example, we have noticed that the most popular small cap stocks among hedge funds tend to outperform the market; the stocks in this category which we listed in our August newsletter produced an excess return of 18 percentage points between September and January (read more about our hedge fund strategies).

However, 13F filings are only released several weeks after the end of a quarter; more up-to-date information on hedge fund activities can be found by looking at 13D and 13G filings. Billionaire Stephen Mandel’s Lone Pine Capital recently disclosed ownership of 7.2 million shares of Charter Communications, Inc. (NASDAQ:CHTR) giving the fund 7.1% of the total shares outstanding. Our records show that Lone Pine had initiated a position in the company during Q3 2012 and owned about 330,000 shares at the end of September. See more of Mandel’s stock picks. Mandel is a Tiger Cub, having previously worked for legendary investor Julian Robertson at Tiger Management.

LONE PINE CAPITALCharter Communications, Inc. was the largest holding in Oaktree Capital’s portfolio at the end of the third quarter, with that fund reporting a position of almost 15 million shares at that time; Oaktree is managed by billionaire Howard Marks (find Oaktree’s favorite stocks). Billionaire George Soros increased his own stake in the company between July and September with his most recent 13F disclosing ownership of 2 million shares of the stock (check out more stocks Soros owned).

The TV, Internet, and phone company’s revenue increased 4% in the third quarter of 2012 compared to the same period in 2011. However, higher operating expenses resulted in Charter recording a roughly equal net loss as in Q3 of the previous year. This performance seems consistent with how Charter Communications, Inc. had done in the first half of 2012. Cash flow from operations was $1.4 billion in the first nine months of 2012, but nearly all of that cash was used on capital expenditures. At a market capitalization of almost $8 billion, Charter trades at high multiples on its earnings but in terms of cash flow it looks somewhat more reasonable priced at an EV/EBITDA multiple of 7.8x. It may be worth noting that Charter’s business has little dependence on the broader economy; in turn, movements in its stock price have a weak correlation with those of market indices as shown by the beta of 0.3.

How does Charter measure up against its peers?

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