It is always interesting to peer into the transactions of large asset managers such as Lone Pine Capital. The fund manager had a whopping $19.3 billion assets under management as of the latest quarter (based on whalewisdom compilation). I looked into its 13F filings to extract some investment ideas, and two of its big buys caught my attention. Lone Pine increased its position in Mead Johnson Nutrition CO (NYSE:MJN) by 87%, bringing the stake to more than 7 million shares, or 2.8% of its portfolio. Likewise, it doubled its position in Intuitive Surgical, Inc. (NASDAQ:ISRG).
Despite the significant lag between the date of filing and the period concerned, the filings nonetheless provide important insights because the analysis is based on current metrics and market trends. Here is a quick assessment from a fundamental perspective to see whether these are worth considering or not.
A wonderful nutrition company
One of Lone Pine’s biggest buys in the latest quarter is Mead Johnson Nutrition CO (NYSE:MJN). With a range of brands that have earned the loyalty, trust, and confidence of many parents for over a century, this is a company of high value. Nowadays, Mead Johnson Nutrition CO (NYSE:MJN) is not only confined to nutrition products for kids big and small and pregnant and lactating moms; it is also selling metabolic formulas that cater to those with more specific needs. It reaches consumers from many countries around the world.
A manifestation of the company’s sound financials and operations is its impressive dividend history. Otherwise it would not have afforded to grow its annualized payout by an average rate of 19.8% in the last three years. Its payout ratio based on cash flow was 34% for 2012. It has a relatively large, growing amount of free cash on its books. Also, the company maintains its profitability with its double-digit profit margin, the most recent of which is around 16%. Its net operating cash flow continued to grow robustly by 23% and 9% in 2011 and 2012, respectively.
Looking ahead, EPS is expected to grow in the next five years by 11.0% on average. I believe there is more to expect from the industry and this company in the future. The U.S. economy continues to show signs of recovery, thereby fueling demand growth. At the same time, the Asia/Latin America segment, Mead Johnson Nutrition CO (NYSE:MJN)’s main growth driver in the latest quarter, is poised to continue the impressive sales performance.
The economic growth prospects in the developing Asian countries and the Latin American region have never been better. At the same time, aging populations and more health-conscious citizens in developed economies will demand more nutritional items and will be seeking quality healthcare services.
In terms of pricing, , the company’s P/E ratio, at 27.5, is above the industry’s 21.1 based on a Yahoo! Inc. (NASDAQ:YHOO) compilation. Nonetheless, it has a lower PEG ratio at 2.2 compared to its competitors Nestle’s 3.8 and Danone’s 3.7, and the industry’s 2.8. Hence, with its value and growth potential, I believe that with a smart entry strategy Mead Johnson Nutrition CO (NYSE:MJN) makes a great long-term investment.
High Potential Healthcare Stock
The biggest buys of Lone Pine Capital are mostly healthcare stocks that have huge growth potential. This focus on the healthcare sector is a good decision considering the opportunity this sector offers. I picked Intuitive Surgical, Inc. (NASDAQ:ISRG) for its strong performance and promising growth potential.