Billionaire Stephen Mandel’s Small Cap Picks Include WABCO Holdings Inc. (WBC)

Lone Pine owned 3.5 million shares of Colfax Corp (NYSE:CFX), an industrial machinery and engineering company, at the beginning of April. In the second quarter of 2013, Colfax delivered 3% revenue growth versus a year earlier but significantly cut SGA and interest expenses, resulting in a large percentage increase in net income. The company earned 74 cents in the first half of the year. However, annualizing that figure yields an earnings multiple of 35 at the current valuation. Wall Street analysts are optimistic enough that the forward P/E is only 21, but that seems like aggressive pricing; earnings growth rates are likely to fall in the future, as increasing profits primarily through wider margins should prove unsustainable.

The thesis behind autos is somewhat interesting, though it was noted that thus far demand for light cars has not been growing that quickly and in addition investors may prefer to look at automakers or other auto parts companies rather than WABCO Holdings Inc. (NYSE:WBC). Semgroup and Colfax seem quite expensive in terms of their trailing earnings, and with their recent revenue results not being that good (and with it being unlikely that these companies can get to a reasonable valuation through margins alone) investors should probably avoid those stocks.

Disclosure: I own no shares of any stocks mentioned in this article.