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

Qihoo 360 Technology Co Ltd (QIHU), Actavis plc (ACT), Yahoo! Inc. (YHOO) Among 20 Long Ideas from Sohn Canada

The 10 Laziest Countries in the World

The 10 Most Polluted Countries in the World

The 10 Most Dangerous Cities in America 2014

The Top 10 Gold Producing Countries in the World

The 10 Tallest Buildings in the World

The 10 Richest Stand Up Comedians in the World

The 10 Fattest Countries in the World

The 5 Best Summer Jobs for Teens

The 10 Most Religious Countries in the World Keeping the Faith

The 10 Most Educated Countries in the World

The 10 Most Popular Cell Phones in the World

The 10 Drunkest Countries in the World

The 10 Most Expensive Private Schools in the World

The 10 Smallest Countries in the World

Walking Dead Season 5 Spoilers You’ll Wish You Didn’t Know

The 10 Poorest Countries in the World

The 10 Greenest Countries in the World

The Top 10 Countries with the Highest Population in the World

The 10 Most Visited Countries in the World

The Top 10 Star Wars Characters in the Iconic Series

The 10 Most Expensive Android Phones in the World

5 Reasons Why The Illuminati Is Real and a Threat to Society

The 6 Scariest Halloween Costumes Ever Screamed At

The 4 Biggest Hedge Fund Managers in the World Today

The 15 Most Densely Populated Countries in the World

The 10 Biggest Tea Drinking Countries in the World

Top 6 Ways to Improve Your Checkout Process and Close Sales

The 5 Most Profitable Online Businesses You Can Start Today

The 20 Most Profitable Hospitals in the US

The 5 Most Profitable Home Businesses to Start

The 7 Teams that Will Win the Stanley Cup in 2015

The Top 10 Most Expensive Digital Cameras to Snap Stunning Shots With

The 10 Highest Quality Fast Food Restaurants In America Today

The 8 Best Halloween Decorating Ideas to Spook Up Your House

10 Marvel Women that Should Get a Movie Right Now

The 20 Best Remixes of Popular Songs that Will Make You Forget the Originals

7 Most Expensive Cities in the World

5 Least Expensive Cities in the World

10 Celebrities Who Believe In Scientology

10 High Margin Food Products to Build a Business Around

The 10 Most Expensive Clothing Stores in the United States to Get Decked Out At

The 5 Biggest Kickstarter Scams That Swindled Backers’ Donations

The 10 Most Expensive Boarding Schools In the World

50 Crazy Facts About Japan You Won’t Believe

Top 10 Least Expensive Hybrid Cars to Save the Planet With

The 10 Biggest ‘Gate’ Controversies in History

The 10 States with the Highest Nursing Shortages Leaving Their Hospitals Depleted

The 10 Best Value Investment Blogs that Every Investor Must Read

The 6 Cheapest Boarding Schools in Europe 2015

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!