Patrick McCormack’s Tiger Consumer Management is one of the many hedge funds seeded by Julian Robertson, the founder of Tiger Management, and like other of these so-called “Tiger seeds” it is housed at the same Park Avenue address Robertson’s legendary firm once called home. Obviously, as the name implies, Tiger Consumer Management is focused on the consumer sector. Below we continue to take a look at their top consumer picks (read the first part of the article here).
Priceline (NYSE: PCLN) continues to be a top pick amongst hedge funds and with good reason. Even in the face of deteriorating macro economy in Europe and the highly competitive nature of the online travel business, PCLN has a risk/reward skew that is satisfactory to us. It remains the leading online travel agency for hotel reservations, which is the fastest growing revenue source for travel intermediaries, second to airline bookings. Booking.com does well in Europe, offering the lowest commission rates, which we think has potential to scale in the US as well. It’s a low capex business with strong cash flow numbers as well as upcoming catalysts. We see PCLN as being best positioned to take market share in Europe and Asia as the offline to online secular trend continues to provide a tailwind and see booking.com disrupting the US hotel market with its low take rate. With all these strategic opportunities and financial strength, we think PCLN can trade to ~15.0x 2013 EPS, which is around $800 a share.
McKesson (NYSE: MCK) is a healthcare information technology company also held by Jay Venkatesen, Larry Robbins, and Martin Sass. With MCK we are eager to see international footprint growth with the Katz acquisition. Though we note that the Canadian business will probably feel some pressure from cuts to generic reimbursement, we still like the economics of the market. Regarding the US business, management does not think a Supreme Court ruling on the Affordable Care Act will have much of an impact on the company. They point out that government HCIT incentive programs are part of the stimulus packages (not the ACA) and therefore not subject to repeal. There are also opportunities to expand beyond the current clinical and EMR products as management sees “pent up demand,” which should reflect in the bottom line in Q3 to Q4. With geographic growth, a moderate regulatory environment, and opportunities in HCIT, we are favorable on MCK.
Herbalife (NYSE: HLF) saw a sharp drop after David Einhorn asked one question on the conference call. Now trading at ~10.5x 2013 earnings and ~7.0x EV/EBITDA when FCF and growth are both strong, we think there is room for upside and multiple expansion to over 15.0x 2013 earnings. HLF has been making substantial progress in China, recently garnering eight new direct selling licenses for Hebei, Shanxi, Tianjin, Heilongjiang, Hunan, Guangxi Zhuang Autonomous Region, Hainan, and Anhui HLF now has direct selling licenses in 24 provinces along with 68 retail stores across 29 provinces as of March of this year. China is fast becoming one of HLF’s most important markets, and could potentially reach over 6% of sales this year accompanied by double digit volume growth. At these valuations, we are buyers.
Google (NASDAQ: GOOG): comScore released global query data for April with Google leading the pack and an impressive query volume of 120.8 billion (68.1% market share). Baidu (NASDAQ: BIDU) came in second with 7.8% market share, Yahoo! (NASDAQ: YHOO) came in third with 5.6% market share, and Bing came in fourth Bing with 2.5% market share. Total internet queries increased 22% y-o-y. Queries on GOOG sites were up 21.9% y-o-y in Q2 versus 27.8% in Q4 and 25.8% in 1Q2011. We continue to scrutinize this metric as it is an indicator of the sustainability of paid click growth. As cost per click (CPC) declines, we want to see if it will at least be partially offset by an increase in query volume. Trading at ~11.0x 2013 earnings, we continue to think GOOG is cheap and well-positioned to growth in mobile and search volumes.
EBAY (NASDAQ: EBAY): We are very bullish on EBAY, owner of PayPal, which recently announced several initiatives aimed at bringing in business from offline merchants. Paypal announced fifteen new national merchants and partnerships with Verifone/Equinox to integrate PayPal into their terminals. Paypal’s goal is to implement its product at 20 national retails by the end of 2012. With Paypal targeting top US retailers as well as the middle market, an initial estimate of 2% penetration and a 1.8% take rate implies over a billion in revenues (US retail commerce of $3.3 trillion). Moreover, there are additional catalysts including Project Cassini for search improvements, PayPal Here roll-out, in-store PayPal progress, and eBay Marketplace check-out improvements.
