Why Does Billionaire Stephen Mandel Love This Stock?

LONE PINE CAPITALIn its 13F filing for the second quarter of 2012, Lone Pine Capital disclosed that it held a position of 3 million shares in Tractor Supply Company (NASDAQ:TSCO), a $6.8 billion market cap retailer of lawn and garden items, hardware, farm supplies, and animal health products. Lone Pine is managed by Stephen Mandel, who founded Lone Pine in 1997 after having worked for Julian Robertson at Tiger Management. Lone Pine now has about $17 billion in assets under management and Mandel has become a billionaire on the strength of his stock picking skills (see other stock picks from Lone Pine Capital). The fact that the fund increased its position in Tractor Supply as much as it did- last quarter the fund only owned about 240,000 shares- suggests that Mandel and his team believe it is at a good buy-in point. The stock is up 38% this year and up 16% since the end of June, but it is actually off  its highs for the year (which occurred in April and May). We would guess that Lone Pine did quite a bit of buying around $95/share or even higher, and with the stock price currently just above $96 investors have an opportunity to get in at a similar price.

A quick glance at the company’s name would suggest that it is an agriculture play. We’re interested in agriculture- note Harvard Management director Jane Mendillo’s advice to the Delivering Alpha conference to buy natural resources- though given some of the company’s business segments it’s not as pure an investment in that theme as, say, fertilizer companies might be. During the second quarter, 40% of revenue came from livestock and pet products (such as food) with another 25% from gifts and toys and 22% from hardware and tools. Overall, revenue increased 10% compared to the second quarter of 2011, and over the first half of the year revenue was up 15%. Net income rose 34% in the first half of 2012 compared to last year. The company’s first quarter strength should be pinned in part on a mild winter, and the second quarter numbers may have benefitted from good weather as well, but the link to agriculture is probably driving some growth as well and Tractor Supply also increased its store count by about 9% compared to the middle of 2011.

We’ve mentioned the stock’s rise so far this year, and that appears to have captured a good deal of the company’s growth prospects. The trailing price-to-earnings ratio is 27 and the forward P/E is 22, which generally are a bit higher than we would like to see. There’s a good case to be made that Tractor Supply’s revenue mix allows it to benefit from agricultural factors without having as much downside as a pure play- the beta is only 1- but on its own the pricing seems to anticipate higher growth than the sell-side.

Tractor Supply’s best comps are the larger supply retailer Home Depot (NYSE:HD) and farm and construction machinery company John Deere (NYSE:DE). We’d also compare it to Potash Corp. of Saskatchewan (NYSE:POT), primarily a fertilizer company but with an animal feed operation as well, as this would be a more concentrated way to invest in agriculture. Of these three companies, Home Depot’s trailing P/E of 20 is the highest trailing earnings multiple, and forward P/Es are 17, 9, and 11 respectively. John Deere and Home Depot also boasted double-digit percentage increases in earnings last quarter compared to a year ago. All three companies are larger in terms of market capitalization and also pay higher dividend yields. In order for Lone Pine to be backing Tractor Supply, the fund must be rather confident in its evaluation of the company’s growth prospects as we don’t see a plausible value story here compared to its peers.

blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

6 Ways to Make Money in ArcheAge and Build Your Empire

10 Foods To Eat To Lower Cholesterol Levels

The 10 Most Hated Television Characters of All Time

The 30 Worst Halloween Costume Ideas Ever Brought to Horrible Life

10 Vocational Skills in Demand Today with Jobs Waiting to be Filled

10 Best Places to Visit in Central and South America

The 10 Greatest Empires in History Which Nearly Conquered the World

The 6 Cheapest Boarding Schools In America 2015

5 Clear Reasons LoL is Better than DotA, Continues to Rule MOBAs

The Only 9 Teams with a Chance to Win the Super Bowl

The 15 Most Common Phobias in America that Induce Fits of Panic

Top 6 Least Expensive Tourist Destinations in 2014

Jim Goetz, Peter Fenton, Jim Breyer: Top 6 Venture Investors for 2014

Top 15 Billionaires in 2014

5 Pitfalls To Avoid When Buying a Franchise

Top 20 Medical Schools in the US – 2014 Rankings

4 Business Strategies that Turned Jamie Oliver into the World’s Richest Chef

6 Qualities That Make You A Good Team Player

10 High Paying Seasonal Jobs in America this Holiday Season

The 10 Busiest Shipping Lanes in the World

5 Most Valuable Brands in China

The 10 States with Highest Substance Abuse Rates Crippling Their Populace

The Top 10 Things to Do Before You Die That Will Echo for Eternity

The 10 Best Selling Items on Etsy

Top 10 Things to Do in Tokyo, the Greatest City in the World

10 Mistakes on Social Media that Can Harm You and Will Probably Get You Canned

The 10 Best Cities to Find Jobs in 2014

The 10 Most Controversial Songs Of All Time to Hit (and get Banned from) the Airwaves

The 20 Biggest IPOs in US History

The 10 Best Places to Visit in Mexico that Are Beautiful and Safe

7 Bad Habits that Age You Beyond Your Years

The 40 Best Fortune Cookie Sayings That Will Leave You Bemused, Befuddled, or Beguiled

10 Foods to Eat Before a Workout to Make Every Drop of Sweat Count

The 5 Best Documentaries On Netflix You Must See

The Most Heartwarming and Inspirational Story Of This Halloween Season, It Will Make You Cry and Jump For Joy

10 Best Party Songs of All Time to Bring the House Down With

5 New World Order Conspiracy Theories that Will Strangle the World

The 10 Highest Rated Movies of 2014

The 10 Largest Container Shipping Companies in the World

The 10 Largest Armies in the World: Who Should We Be Afraid Of?

Best Warren Buffett Quotes on Money You Need to Hear

The 10 Highest Suicide Rates by Profession

The 20 Most Underrated Movies of All Time

The 10 Fastest Growing Companies in America

The 10 Biggest Outlet Malls in USA

The 5 Most Popular Rap Songs of All Time

The 10 Countries that Eat the Most Meat

The10 Most Expensive Countries to Fly To

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!