We track quarterly 13F filings from hundreds of hedge funds, including billionaire and Tiger Cub Stephen Mandel’s Lone Pine Capital, as part of our work developing investment strategies (we have found, for example, that the most popular small cap stocks among hedge funds earn an average excess return of 18 percentage points per year). It can also be useful to go through filings from individual managers looking for trends and potential investment ideas; when we were going through Lone Pine’s top picks, we noticed a number of consumer stocks among its top picks. Here are our thoughts on Mandel’s five largest positions in consumer stocks as of the end of March (or see the full list of stocks Lone Pine reported owning):
The fund owned over 14 million shares of Dollar General Corp. (NYSE:DG) per the filing. With a beta of 0.2, Dollar General Corp. (NYSE:DG) – as might be expected for a dollar store- trades more or less independent of broader economic conditions. The first quarter of its fiscal year ended in early May, with revenue up 9% versus a year earlier but net income only rising at a 3% rate. With a trailing earnings multiple of 17 we’d be somewhat concerned with the valuation. Fellow Tiger Cub fund Tiger Global Management initiated a position of 5.3 million shares last quarter (check out Tiger Global’s stock picks).
Lone Pine’s interest in dollar stores wasn’t limited to Dollar General Corp. (NYSE:DG): it slightly increased its holdings of Dollar Tree, Inc. (NASDAQ:DLTR) to just over 12 million shares. Like its peer, Dollar Tree, Inc. (NASDAQ:DLTR) carries a low beta (0.1) and a fairly high valuation (the trailing P/E is 18). Business has been doing better, however, with revenue rising 8% in its most recent quarter compared to the same period in the previous fiscal year and earnings up 15%. Blue Ridge Capital, which is managed by John Griffin- another Tiger Cub- kept its stake constant between January and March at 6.5 million shares (find Griffin’s favorite stocks).
Mandel and his team increased the size of their position in Mead Johnson Nutrition CO (NYSE:MJN) by 87% to a total of about 7 million shares. Mead Johnson Nutrition CO (NYSE:MJN) provides infant’s and children’s nutrition products such as baby formula. The stock trades at a premium valuation, in part due to rumors that the Chinese government (China is a critical market for the company) will relax its one-child policy, potentially stimulating long term demand. We don’t recommend buying on these rumors, however. Bain Capital’s hedge fund Brookside Capital was another major shareholder in Mead Johnson at the end of the first quarter.
Ralph Lauren Corp (NYSE:RL) rounds out our list of Lone Pine’s top five consumer picks; the fund cut its stake by 20%, but still disclosed ownership of 3.2 million shares. The apparel designer and retailer features trailing and forward P/Es of 22 and 18, respectively. At that valuation markets are pricing in sizable growth: net income did rise 35% in its fiscal Q4 (which ended in March) versus a year earlier though sales were about flat, likely signaling a limit to future earnings growth. Lee Ainslie’s Maverick Capital owned about 790,000 shares at the end of March (see more stocks Ainslie likes).
Disclosure: I own no shares of any stocks mentioned in this article.
