Among many hedge funds, the so-called “Tiger Cubs” stand out for their distinctive style and investment preferences. The majority of Tiger Cubs are growth-oriented investors and they seem to favor Technology and, particularly, Internet stocks more than others. Tiger Cubs, which bear their name after their former employer and mentor Julian Robertson, have gotten quite successful, with a handful of them even becoming billionaires. One billionaire Tiger Cub is Stephen Mandel, who runs Lone Pine Capital.
Mandel, who had worked as a managing director at Robertson’s Tiger Management, founded Lone Pine Capital in 1997. The fund, one of the 10 largest hedge funds in the world, was named after a pine tree that survived a lightning strike on the campus of Dartmouth College, Mandel’s alma mater. Lone Pine operates several long/short funds and employs fundamental, bottom-up approach to picking investments. Its Cypress Funds, the Kauri Funds and the Tamarack Funds invest in growth companies, companies that generate a lot of cash, but don’t have many growth opportunities, so management is using it to create shareholder value, and great businesses that had been under-managed, but got outstanding new leadership.
On the other hand, these funds short-sell stocks of companies, whose growth sustainability is overestimated, which have long-term competitive or balance sheet problems, and whose reported results are questionable when compared to the economic reality. In addition, Lone Pine also operates, Cascade Funds, which are usually long-only and unleveraged, as opposed to the funds mentioned earlier. It also has a private investment fund of funds, Juniper.
Stephen Mandel, who has a net worth of $2.5 billion, according to Forbes, was ranked among the highest-earning hedge fund managers in 2012 and 2013 by the same publication. However, Lone Capital’s returns have been mixed in the last couple of years. In 2015, Lone Pine’s long-only Cascade Funds lost 1.2%, while Cyprus and Kauri ended the year 8.7% and 8.9% in the green, respectively. A year later, though, Cascade was the only fund to show a profit, though a small one, of around 1%, while Cyprus, Kauri, and Tamarack lost between 1% and 2%, affected by their short bets.
In its latest 13F filing, Lone Pine disclosed an equity portfolio worth $19.67 billion, held as of the end of June. The filing also showed that Internet stocks are still a significant part of its portfolio, as the Technology sector takes up more than half of its value. In a 2015 letter to investors, the fund said that it believed that Internet disrupters would create value for years to come. In another letter, the fund said:
“The internet remains the single most important and disruptive economic phenomenon in the world. It is transforming almost every sector of the economy. A few leading internet companies dominate the scarce real estate on the mobile web, a place where customers are flocking globally. These companies still have significant runway for growth and are not trading for overly demanding valuations. Increased mobile web use can also improve the economics of existing platforms: e.g., enterprise software companies such as Adobe and Microsoft as they move to accretive subscription models. It also untethers the videogame industry from the boom/bust nature of the traditional console cycle. Internet-driven investments remain the largest portion of our long portfolio.”
Following funds like Lone Pine Capital can be a great way to generate market-beating returns, as our research shows. According to our calculations, the fund’s long positions in companies worth over $1.0 billion returned 12% in the first three months of 2017. In the 12-month period ended March 31, its holdings gained over 29%. This means that a smaller investor would’ve beaten the market by more than 10 percentage points, by simply imitating Lone Pine’s picks. Insider Monkey allows readers to follow over 600 hedge funds in addition to Lone Pine. Our readers can subscribe to real-time alerts, whenever these funds file an update to one of their holdings with the Securities and Exchange Commission. To do that, you should sign up on our website and add Lone Pine, or any other fund you are interested in to your follow list.
Having said that, let’s take a closer look at some of the top Internet/Tech picks that Lone Pine disclosed in its latest 13F filing.
1. Alibaba Group Holding Ltd (NYSE:BABA)
Lone Pine had initiated a stake in Alibaba Group Holding Ltd (NYSE:BABA) during the third quarter of 2016 and during the second quarter of 2017 it added 1.77 million shares, having increased its position to 11.67 million shares worth over $1.64 billion. Alibaba’s stock has almost doubled in value since the beginning of the year on the back of solid financial results and other positive news. At the beginning of June, the stock jumped by more than 10% in one day after the company’s CEO, Daniel Zhang, had said during the investor day presentation that they expect merchandise volume to reach $1.0 trillion by 2020, while Alibaba’s CFO, Maggie Wu, provided a revenue growth estimate between 45% to 49% for 2018. There were 116 investors tracked by Insider Monkey bullish on Alibaba Group Holding Ltd (NYSE:BABA) at the end of June, up from 97 funds a quarter earlier.
2. Activision Blizzard, Inc. (NASDAQ:ATVI)
In Activision Blizzard, Inc. (NASDAQ:ATVI), Lone Pine cut its stake by 13% to 5.32 million shares worth $1.24 billion between April and June. The position amassed 6.30% of its equity portfolio heading into the third quarter. Another investor bullish on the company is fellow Tiger Cub Philippe Laffont’s Coatue Management, which holds 11.91 million shares. Activision Blizzard, Inc. (NASDAQ:ATVI) is another investment that has been paying off for Lone Pine, so far this year, with its stock over 80% in the green year-to-date. The increase was aided by annual increases in videogame sales registered in March, April, June, and July, as well as by strong financial results posted by Activision Blizzard, Inc. (NASDAQ:ATVI). For the last quarter, the company posted EPS of $0.32, which beat the estimates by $0.16, while Revenue of $1.42 billion was $190 million higher than expected. Both figures were also higher than the company’s own guidance. In addition, in February, when Activision Blizzard, Inc. (NASDAQ:ATVI) posted better-than-expected financial results, it also announced a 15% dividend hike and a $1.0 billion stock buyback plan. Moreover, earlier this year, Activision Blizzard, Inc. (NASDAQ:ATVI) became a newcomer on the Fortune 500 list.
3. Broadcom Ltd (NASDAQ:AVGO)
Lone Pine also disclosed a $1.24 billion stake in Broadcom Ltd (NASDAQ:AVGO), which contains 5.32 million shares. The semiconductor maker’s stock has advanced by over 40% since the beginning of the year, as it has been clearing steps to complete the acquisition of Brocade Communications Systems, Inc. (NASDAQ:BRCD) announced last year. Recently, the company reported its fiscal third-quarter results, which included Revenue of $4.46 billion, in-line with estimates, while its EPS of $4.10 was better than the expected $4.03. Analysts are also optimistic about the company’s near future, as Apple Inc. (NASDAQ:AAPL) is about to announce its new iPhone and it is expected that the amount of Broadcom Ltd (NASDAQ:AVGO) parts will be larger. During the second quarter, the number of investors from our database bullish on Broadcom Ltd (NASDAQ:AVGO) increased by eight to 72.
4. FleetCor Technologies, Inc. (NYSE:FLT)
FleetCor Technologies, Inc. (NYSE:FLT) saw Mandel’s fund boost its holding by 45% to 6.55 million shares during the second quarter; the stake was valued at $945.37 million at the end of June. Mandel wasn’t the only Tiger Cub to become more bullish on the provider of commercial payment solutions. Chase Coleman’s Tiger Global added 879,049 shares to its position, having increased it to 2.28 million shares. Over the last year, FleetCor Technologies, Inc. (NYSE:FLT)’s shares have slid by more than 14%. Earlier this year, renown short-seller Citron Research, issued several reports targeting FleetCor Technologies, in which it called it “a predatory company” that is ripping off customers, and claimed that FleetCor had “developed a deep learning algorithm to intentionally cheat its customers with ‘junk’ fees.” In the meantime, FleetCor Technologies managed to top the consensus EPS and revenue estimates in the last two quarters.
5. Facebook Inc (NASDAQ:FB)
During the second quarter, Lone Pine also added some 1.06 million shares to its position in Facebook Inc (NASDAQ:FB). In this way, the fund reported a $931.25 million position containing 6.17 million shares in its latest 13F filing. Among the funds in our database, Facebook, Inc. (NASDAQ:FB) is the most popular stock, with 156 investors holding its shares as of the end of June, up by one over the quarter. The share price of the social media giant has grown by nearly 49% since the beginning of the year, amid the company reporting strong financial results. However, Facebook, Inc. (NASDAQ:FB)’s revenue growth has shown signs of slowdown and some analysts are worried about a potential slowdown in ad spending. The company still has Messenger and WhatsApp to monetize in order to unlock revenue streams. It also plans to focus more on video and is about to release its own original content series that were announced earlier this year.
Disclosure: none
