5 Best Stocks In The S&P 500 Index According To This Billionaire

Billionaire Stephen Mandel has been one of the most successful hedge fund managers in recent times with his Lone Pine Capital ranking amongst the largest hedge funds in the world. His fund had a 13F portfolio value of $22 billion at the end of the third quarter. At Insider Monkey, we backtested a portfolio of five of his largest positions in large-cap stocks and calculated the returns thereof. These stocks returned an average of 0.70% each month from 1999-2012. During the same period S&P 500 Index returned just 0.32% per month. His large cap stock picks outperformed the market by 38 basis points per month, or 4.56% per year.

This may not sound like a big outperformance but you should keep in mind that the majority of active mutual funds underperform the S&P 500 Index which is why passive index funds became so popular in recent years. Investors investing in hedge funds have been underperforming in recent years as well mainly because of the large fees (thay take away 2 percentage points every year, plus 20% of each year’s return; so if a hedge fund has gross returns of 10%, its net return will be closer to 6%). However, if you were an investor imitating the top large-cap stock picks of Steve Mandel, you would have outpaced the S&P 500 Index by more than 4 percentage points a year. Given his strong large cap selection track record, we have analysed some of Stephen Mandel’s top large cap picks in the article below.

Hedge funds are actually pretty good at picking stocks. We follow over 700 hedge funds and other institutional investors and by analyzing their quarterly 13F filings, we identify stocks that they are collectively bullish on and develop investment strategies based on this data. One strategy that outperformed the market over the last year involves selecting the 100 best-performing funds and identifying the 30 mid-cap stocks that they are collectively the most bullish on. Over the past year, this strategy generated returns of 18%, topping the 8% gain registered by S&P 500 ETFs.

Charter Communications, Inc. (NASDAQ:CHTR) was the largest holding of Stephen Mandel’s Lone Pine Capital. The fund bought 457,698 shares of this stock worth $1.4 billion during the July-September period. This $74 billion is the second largest broadband provider in USA after its merger with Time Warner Cable Inc (NYSE:TWC) earlier this year. For the quarter ending September, Charter Communications, Inc. (NASDAQ:CHTR) reported an increase of 7.4% in revenues to $10 billion, when compared to the prior year period. Its network also reached to 49 million homes and businesses.

The stock has cheered investors by returning 48% over the last one year. The stock is trading very close to its 52 week high price and has been rated as a buy by most analysts. The other hedge funds from our system did not share Mandel’s thoughts as the number declined to 112 versus 13 in the second quarter. They held more than 79% of the company’s float at the end of September.

Lone Pine Capital initiated a new position in eBay Inc (NASDAQ:EBAY) by buying more than 33 million shares of during the quarter ending September. Stephen Mandel was the top buyer of the second largest online retailer in USA. eBay Inc (NASDAQ:EBAY) is now the third largest holding of the fund. The shares of this $32 billion US e-commerce player declined 2% over the last year. The company posted healthy net profit margin of 18.8% and operating margin of 24.5% at the end of third quarter. Amongst the other hedge funds, top buyers of eBay Inc (NASDAQ:EBAY) included Israel Englander’s Millennium Management and the quant hedge fund Renaissance Technologies. Thus three of the largest hedge funds in the world held a large stake in this stock. The value of hedge fund holdings in eBay Inc (NASDAQ:EBAY) more than doubled to $3.7 billion from $1.72 billion quarter over quarter.

 

Stephen Mandel slightly decreased his stake in Amazon.com, Inc. (NASDAQ:AMZN) by selling 351,140 shares at the end of the third quarter. The stock still is the fourth largest holding of Lone Pine Capital for the quarter. This $366 billion largest online e-commerce player has returned almost 300% to its stockholders over the last five years, when the broader NASDAQ was up only 120%. Amazon.com, Inc. (NASDAQ:AMZN) has been a hot favourite amongst the world’s largest hedge funds this year.  Amazon.com, Inc. (NASDAQ:AMZN) was the largest holding of D.E. Shaw with a total holding size of $905 million. It also constituted the biggest position in Viking Global Investors. At the end of the third quarter, the number of hedge funds long in this stock increased to 150 from 145 in the quarter earlier. The value of their holdings also increased by almost 5% to $20.8 billion, quarter over quarter.

Constellation Brands, Inc. (NYSE:STZ) remains one of the biggest stock holdings of Lone Pine Capital despite the fund cutting down its stake by 16% at the end of the third quarter. Stephen Mandel still holds $926 million of this wine maker’s shares which gives him a 3% ownership of the company. Viking Global Investors was the biggest buyer of this company’s stock purchasing 2.2 million shares during the third quarter. Constellation Brands, Inc. (NYSE:STZ) was also highly popular amongst large hedge funds with Israel Englander‘s Millennium Management, Pictet Management, Third Point, AQR Capital Management and Citadel Advisors buying substantial stakes. Constellation Brands, Inc. (NYSE:STZ) has a market value of $30 billion and gives a dividend yield of 1%. It has been a multi bagger over the last 5 years but its recent performance has been quite tepid. As per our database, 67 funds held shares worth $6.67 billion in Constellation Brands, Inc. (NYSE:STZ), versus 69 funds holding $6.27 billion in the quarter earlier.

Lone Pine Capital reduced its position in Nike Inc. (NYSE:NKE) during the third quarter but it still remains the fund’s 6^th largest position with a value of $927 million. The fund initiated a position in this stock during the first quarter of 2015 and owns more than 1% of the total shares of this footwear giant. Quant funds Renaissance Technologies and D.E.Shaw also reduced their holdings of Nike Inc. (NYSE:NKE) during the quarter. The stock has performed poorly over the last one year losing 1/5^th of its value and trades at the bottom of its annual price range. Nike Inc. (NYSE:NKE) gave a guidance of just 1% sales growth in USA which implied that the company is losing market share in the USA to competitors. Its overall growth is also expected to slow down to just 5% compared to 9% growth last year. According to our records, smart money investmnet in this stock declined substantially by 13.5% quarter over quarter.

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