In this article we take a look at billionaire Stephen Mandel’s top 10 stock picks. You can skip our detailed discussion of Mandel’s history, his hedge fund’s performance, and go to Billionaire Stephen Mandel’s Top 5 Stock Picks.
Stephen Mandel’s Investment Philosophy and His Hedge Fund Returns
Stephen Frank Mandel, Jr is an American billionaire and hedge fund manager who founded Lone Pine Capital in 1997. As of the end of 2020, Lone Pine has over $27 billion in managed securities. According to a report, Mandel’s hedge fund returned $9.1 billion to investors in 2020, the third biggest gain in the hedge fund industry.
In 2017, Mandel announced in a letter to shareholders that he was stepping back from day-to-day portfolio management and handing over the responsibilities to David Craver, Mala Gaonkar and Kelly Granat. However, the billionaire said that he would still be involved in discussing investment ideas with his team, coaching young associates and giving them direction.
The 65-year-old billionaire whose worth stands at around $4 billion was raised in Connecticut, and has an MBA from Harvard University. Mandel attended Dartmouth College, where he was fascinated by a pine tree that had famously survived a lightning strike in 1887. Mandel would later name his hedge fund after this tree.
After working as a consumer retail analyst at Goldman Sachs for 6 years, Mandel joined Tiger Management, the legendary firm of Julian Robertson, thus becoming a “tiger cub.” He left the Robertson’s firm to start Lone Pine Capital in 1997.
Mandel’s fund uses a long/short investing approach, giving importance to both value and growth prospects of stocks. In 2015, Mandel warned about the “eye-popping” valuations of tech stocks. Since its inception through 2017 when Mandel left portfolio management, Lone Pine returned an annualized 19.5 percent.
Mandel recently gave a detailed interview and talked about several important topics. Here’s what he said:
Buy and Hold Strategy
“We enter an investment we expect to compound value for a long time, and we expect to hold them for a long time. Sometimes we make a mistake, and we don’t hold them for a long time, or sometimes price gets ahead of where we think the return profile is, and we sell it. But we have other types of investments where there’s a catalyst for realizing value. When new management comes in, an acquisition, that’s a catalyst for driving value… In general, we would probably need to find some type of catalyst for the realization of that value, and if something is abjectly cheap relative to its intrinsic value, we would absolutely look at it. We would go through a process of trying to understand the management, what they’re trying to do, to realize value. We are not activists. I would say we are suggestivists, where we will engage with boards and with management if we don’t think they’re doing everything they should do to run the business right or realize value, then we will engage a dialogue with them. But we don’t go public with that or wage proxy fights.”
The Current Market Situation, Digital Payments Businesses
“Obviously, with Covid going on, we’re in a extremely low interest rate environment, which creates a lot of economic distortion, and is frankly beneficial to people like us, and often hurts people who do not have capital to deploy. This is one of the most exciting things about being in the business that we’re in. The level of innovation, and the level of progress coming for largely from new technology is just like we’ve never seen really in the history of the world. The areas we find most interesting, I would say digital payments is one area. You know for a long time, the cash in check has been moving to various forms of digital payments but this is accelerating rapidly, and is moving both across the world, not only from consumer to business payments, but business to business payments as well. Many people have been unbanked before and had difficulty dealing with the banking system, to really enter through Cash App, and other forms of saving money or handling money, entering the economy in a digital way, and not having to deal with cash as much.”
The Evolution of Mandel’s Strategy
“The areas that were the biggest areas of investment for us back 20 years ago versus today, are areas that we don’t and basically almost don’t invest in at all. We were pretty significant investors in retailing back then. Land-based retailing. We were big investors in wireless, that was actually our biggest area of investment back in our early days. We haven’t had anything in wireless in 15 years probably… A number of the biggest industries and biggest employers in the country 50 years ago or 30 years ago, have their employment count shrunk. They’re mostly manufacturing type industries but we’ve had massive growth in other industries where we lead the world, technology, entertainment, healthcare.”
Mandel stands out in the struggling hedge fund industry, which is losing ground amid severe losses. Its reputation has been tarnished in the last decade, during which its hedged returns couldn’t keep up with the unhedged returns of the market indices. On the other hand, Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 124 percentage points since March 2017. Between March 2017 and February 26th 2021 our monthly newsletter’s stock picks returned 197.2%, vs. 72.4% for the SPY. Our stock picks outperformed the market by more than 124 percentage points (see the details here). We were also able to identify in advance a select group of hedge fund holdings that significantly underperformed the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 16th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.
Let’s now take a look at billionaire Stephen Mandel’s top 10 stock picks.
10. L Brands, Inc. (NYSE: LB)
Percent of Stephen Mandel’s 13F Portfolio: 3.55%
Number of Hedge Fund Holders: 52
Ohio-based L Brands is a fashion clothing retailer with a market cap of about $17 billion. The owner of Victoria’s Secret and Bath & Body Words brands was recently upgraded by Telsey Advisory Group. The firm also increased its price target for the company to $65 from $54. The company recently approved the payment of $1.035 billion of debt through bond issues. L Brands also announced a $500 million share repurchase plan to replace its existing $79 million plan. The company also reinstated its $0.60 per share dividend. L Brands shares have gained a whopping 515% over the last 12 months.
As of the end of the fourth quarter, 52 hedge funds in Insider Monkey’s database of 887 funds held stakes in LB, compared to 45 funds in the third quarter. Stephen Mandel’s Lone Pine Capital is the biggest stakeholder in the company, with 26.2 million shares, worth $976.8 million.
9. Snap Inc. (NYSE: SNAP)
Percent of Stephen Mandel’s 13F Portfolio: 3.55%
Number of Hedge Fund Holders: 63
Snapchat’s parent is a new arrival in billionaire Stephen Mandel’s portfolio, as Lone Pine bought 19.51 million new shares of the company, worth $976.9 million. Cathie Wood’s ARK Investment Management also bought 1.5 million shares of the social media company in the fourth quarter. Snap stock is gaining momentum following a strong investor day as the company said it expects multiple years of over 50% revenue growth. Morgan Stanley said that the company’s investor day confirmed its bullish thesis for the stock. The firm lifted its Snap stock price target to $85 from $80. Snap shares have gained over 600% over the last 12 months. The stock ranks 9th in the list of billionaire Stephen Mandel’s top 10 stock picks.
The company is also getting the attention of the smart money, as 63 hedge funds tracked by Insider Monkey reported owning stakes in the company at the end of the fourth quarter, up from 51 funds a quarter earlier.
8. MercadoLibre, Inc. (NASDAQ: MELI)
Percent of Stephen Mandel’s 13F Portfolio: 3.63%
Number of Hedge Fund Holders: 79
Argentina-based MercadoLibre is an ecommerce marketplace company offering digital business and payments services in 18 Latin American countries. The company’s shares have gained over 200% in the last 12 months. Hedge funds are also paying attention to the stock. Insider Monkey’s database of 887 funds shows that 79 hedge funds held stakes in the company at the end of the fourth quarter, compared to 81 funds in the third quarter. The total value of these stakes is $8.8 billion. GQG Partners, with 1.08 million shares of MELI, is the biggest stakeholder in the company.
“In the fourth quarter, we purchased MercadoLibre, an Argentina-based company that operates the leading e-commerce shopping platform in Latin America, similar to Amazon.com. MercadoLibre is a company well known to Brown Capital as it has been held in our International Small Company Strategy since its inception seven years ago. While we are optimistic on MercadoLibre’s outlook, we have liquidated our shares in the International Small Company Fund as we no longer consider it to be a small company. The MercadoLibre platform is growing quickly; it more than doubled the value of items sold in the latest reported quarter versus the prior-year period. Given that e-commerce is only 2.5% of total retail sales in Latin America, MercadoLibre has tremendous room for growth as it trends towards the 10%-plus penetration rate seen in the U.S. and Western Europe. We are particularly encouraged by the company’s significant investment in distribution as well as its shift into the sales of first-party goods, both of which reduce delivery times for customer orders.
While the high growth in the shopping platform is notable, we believe there is a larger opportunity in the company’s payment platform, called Mercado Pago. In the last reported quarter, transaction volumes that were independent of the shopping platform nearly tripled compared to the prior-year period. Mercado Pago offers a strong solution in digital payments and banking services, particularly for micro merchants. MercadoLibre offers a mobile Point of Sale (mPOS) with 2.5 million active units today and sees the market potential at 15 million units. In addition to unit growth, Mercado Pago will also benefit from higher transaction volume on the mPOS systems, as today merchants transact about 500 Brazilian reals per month, while competing mPOS units can generate 3,000 Brazilian reals per month. While the opportunity is large, it is also competitive. We believe Mercado Pago has an advantage as it can leverage the success of the MercadoLibre platform, which is well known in the markets is serves.”
7. Adobe Inc. (NASDAQ: ADBE)
Percent of Stephen Mandel’s 13F Portfolio: 3.67%
Number of Hedge Fund Holders: 114
Billionaire Stephen Mandel’s Lone Pine Capital upped its stake in Adobe by 20% in the fourth quarter, ending the period with over 2 million shares, worth $1 billion. The stock is up 52% over the last 12 months. Adobe has successfully achieved a major shift towards subscription-based revenue. In 2020, the company’s Digital Experience segment revenue came in at $3.13 billion, a 12% growth on a year-over-year basis. Digital Experience subscription revenue jumped 17% in the period YoY.
Fisher Asset Management is one of the 114 hedge funds tracked by Insider Monkey having stakes in ADBE at the end of the fourth quarter. The fund owns over 5.8 million shares of the company. ADBE ranks 16th in our list of the 30 Most Popular Stocks Among Hedge Funds: 2020 Q4 Rankings.
Polen Focus Growth said in one of their investor letters that Adobe Inc. (NASDAQ: ADBE) was one of the top contributors for the fund during the fourth quarter of 2020. Here is what Polen Focus Growth has to say about Adobe Inc. in their investor letter:
“For the full year 2020, one of the top performers was Adobe, which we have owned for many years, continues to benefit from being the gold standards of software in its respective areas, and the current environment has only served to accelerate customer demand and need for their products and services.”
6. UnitedHealth Group Incorporated (NYSE: UNH)
Percent of Stephen Mandel’s 13F Portfolio: 4.05%
Number of Hedge Fund Holders: 91
An analysis of billionaire Stephen Mandel’s portfolio shows that Lone Pine Capital decreased its stake in Unitedhealth Group Inc in the fourth quarter by 20%. The hedge fund owns 3.2 million shares of the company, worth $1.12 billion. In the fourth quarter, the company’s revenue increased by 7.5%.
According to our database, the number of UNH’s long hedge funds positions increased at the end of the fourth quarter of 2020. There were 91 hedge funds that hold a position in UnitedHealth Group compared to 89 funds in the third quarter. The biggest stakeholder of the company is Boykin Curry’s Eagle Capital Management, with 3.39 million shares, worth $1.2 billion.
“There may be no better example of the strangeness of our healthcare system than the performance of the largest health insurer in the middle of a pandemic that has killed 400,000 Americans. UnitedHealth’s earnings increased 12%, from $15.11/share to $16.88/share, as foregone medical care more than outweighed the costs of coronavirus treatment. Meanwhile, after a year that began with the two major political parties offering vastly different views of the healthcare landscape, from eliminating private health insurance to eliminating Medicaid, we elected a divided government with other priorities and a general tendency to make only marginal changes to the existing ecosystem. UnitedHealth returned 27.1% during our partial year of ownership, and we expect it to have a strong 2021 as employers resume hiring and Medicare Advantage continues to grow in popularity.”
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Disclosure: None. Billionaire Stephen Mandel’s Top 10 Stock Picks is originally published on Insider Monkey.