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Chase Coleman’s $10 Billion Hedge Fund is Bullish About These Stocks

Chase Coleman is the founder and managing partner of Tiger Global Management, one of the most successful tiger cubs. Coleman was seeded by Julian Robertson after graduating from Williams College. He started working as a technology analyst at Robertson’s Tiger Management LLC in 1997. Coleman was only 25 when Robertson closed his fund in 2000. Coleman took seed money from Robertson and turned it into a $10 billion hedge fund in 10 years. He owes his success partly to private investments in tech stocks. For example, he owns stakes in Facebook Inc and Zynga Inc (ZNGA). The former recently filed for an IPO and is expected to raise at least $5 billion, and the latter raised over $1 billion in an IPO on December 15, 2011. Coleman also invests in publicly traded technology companies, such as Google Inc (GOOG) and Apple Inc (AAPL).

Chase Coleman Tiger Global Management

Recently Coleman reported his latest holdings in a 13F filing. Let’s take a closer look at his most bullish bets and decide whether it makes sense for investors to imitate these stock picks.

Yandex NV (YNDX) is the largest position in Coleman’s portfolio. At the end of last year, Tiger Global had more than $1 billion invested in this stock. A few other hedge fund managers were also bullish about YNDX. At the end of the third quarter, there were 11 hedge funds reported to own YNDX in their 13F portfolios. For instance, John Griffin’s Blue Ridge Capital had $34 million invested in YNDX at the end of September. Tiger Cub Stephen Mandel’s Lone Pine Capital also had $25 million invested in the stock.

We are not very bullish about YNDX though. It seems that the stock is trading at a premium compared with its peers in the internet information providers industry. YNDX is a growth stock. Its forward P/E ratio is 42.42 and it has an expected growth rate of 34.73%. We think the price premium that investors have to pay for the marginal growth is excessive. YNDX’s P/E ratio in 2014 is 23.4, compared with only 8.6 for GOOG and 12.5 for YHOO.

We think GOOG is a much better choice than YNDX. Coleman likes GOOG too. Over the fourth quarter, he significantly boosted his GOOG stakes by over 1000%. As of December 31, 2011, Tiger Global had $469 million invested in GOOG. GOOG is very popular among hedge funds. Nearly one-third of the hedge funds tracked by us reported owning GOOG at the end of September. Stephen Mandel was bullish about GOOG as well. His Lone Pine Capital had nearly $500 million invested in the stock. Ken Fisher and John Griffin were also in favor of this stock. Fisher Asset Management had over $300 million invested in GOOG and Blue Ridge Capital had over $200 million invested in the stock.

We think GOOG is a great stock to invest in. The company has been expanding in various areas, such as social media and display advertisement. As we mentioned earlier, it is also trading at low multiples. GOOG has a forward P/E ratio of 12.09 and its EPS is expected to grow at an average of 18.75% per year over the next five years. Hence, its P/E ratio for 2014 is 8.6. The main competitors of GOOG include YHOO and AOL Inc (AOL). Both of them have higher P/E ratios compared with GOOG. YHOO’s 2014 P/E ratio is 12.5 and AOL’s is 19.96.

GOOG is not the only tech giant with attractive valuation levels. AAPL, another large position in Coleman’s portfolio, is also relatively undervalued. Tiger Global reported to own $656 million worth of AAPL shares at the end of 2011. AAPL is the most popular stock among hedge funds. At the end of the third quarter, there were 125 hedge funds with AAPL positions, including Rob Citrone’s Discovery Capital Management, Stephen Mandel’s Lone Pine Capital, David Einhorn’s Greenlight Capital, John Griffin’s Blue Ridge Capital, Andreas Halvorsen’s Viking Global, and Jim Simons’ Renaissance Technologies. AAPL outperformed the market by nearly 35 percentage points over the past 52 weeks. We think it will continue to be a winner. Its forward P/E ratio is 10.58 and it is expected to grow at 18.76% per year for the next five years. So its 2014 P/E ratio is only 7.50.

A few other large positions in Coleman’s portfolio include Inc (PCLN), Liberty Global Inc (LBTYA), Visa Inc (V), and MasterCard Inc (MA). All these stocks have double-digit expected growth rates. Warren Buffett likes both V and MA. Berkshire Hathaway had over $100 million invested in both stocks.

Overall we like Coleman’s stock picks. We like his focus on the technology sector. We think most tech stocks are undervalued and have great potential to generate decent returns in the near future.