The broader market selloff in the third quarter left few hedge funds unscathed, with many of those investors extending their losses throughout the entire year amid sluggish economic growth and low oil prices. Tiger cub Stephen Mandel‘s Lone Pine Capital was no exception, as its funds, Cypress, Kauri, Cascade and Tamarack lost between 3% and 4% during the third quarter. However, they still managed to outperform the S&P 500 and the MSCI World Index during this period and they are still in the green in year-to-date terms, according to Lone Pine’s letter to investors for the third quarter. Despite the losses, Lone Pine is still bullish on most of its holdings and projects steady returns for the next several years. In addition to discussing the current environment and projections, Lone Pine also presented the top 20 positions of Lone Cypress and in this article we are going to discuss the five at the top of that list.
Lone Pine is one of over 730 funds that we track as part of our small-cap investment strategy. By analyzing the 13F filings of these elite funds, we determine the collective sentiment these funds have towards different stocks and this allows us to see whether or not they see any long-term value in these companies. However, we focus on their top 15 small-cap ideas, because our research showed that these stocks can provide the highest returns among all the picks of the funds we track. In this way, our strategy has returned 102% since August 2012, outperforming the S&P 500 ETF (SPY) by around 53 percentage points (see more details here).
Priceline Group Inc (NASDAQ:PCLN) represents Lone Cypress’ largest holding, amassing 5.3% of its equity as of the end of September. In its 13F for the second quarter, Lone Pine revealed holding 1.19 million shares of Priceline, which represented its second-largest holding in terms of value. The stock trades at 32.4-times earnings, which is higher than the S&P 500’s average, but is below the industry average, and it has a PEG ratio of around 1.1. The funds from our database are collectively bullish on Priceline Group Inc (NASDAQ:PCLN), as 71 funds reported stakes equal to nearly 13% of the company’s stock as of the end of June. Chase Coleman, another Tiger Cub, is also bullish on Priceline Group Inc (NASDAQ:PCLN), with Tiger Global Management disclosing ownership of 727,939 shares as of the end of June.
On the second spot is Amazon.com, Inc. (NASDAQ:AMZN), in which Lone Cypress’ holding is equal to 4.2% of its equity. However, Lone Pine did not disclose holding shares of Amazon in its previous 13F. Following solid financial results for the third quarter, Amazon’s stock jumped by over 10% and sent the shares’ year-to-date gain to over 100%. Amazon.com, Inc. (NASDAQ:AMZN) represents a good bet since the company is not only one of the leaders in the e-commerce space, but is also making significant progress with its Amazon Web Services segment in the cloud-computing industry. Amazon is trading at a huge 85-times forward earnings, but investors also anticipate significant growth, since it also has a PEG ratio of under 1.0. In the current round of 13F filings, billionaire Ken Fisher’s Fisher Asset Management reported holding some 2.50 million shares of Amazon.com, Inc. (NASDAQ:AMZN).
On the following page, we are going to discuss the other three picks of Lone Cypress, namely JD.Com Inc (ADR) (NASDAQ:JD), Charter Communications, Inc. (NASDAQ:CHTR), and Microsoft Corporation (NASDAQ:MSFT).