Billionaire Stephen Mandel Is Betting Big on Tech and These Are His Favorite Picks

The broader market selloff in the third quarter left few hedge funds unscathed, with many of those investors extending their losses throughout the entire year amid sluggish economic growth and low oil prices. Tiger cub Stephen Mandel‘s Lone Pine Capital was no exception, as its funds, Cypress, Kauri, Cascade and Tamarack lost between 3% and 4% during the third quarter. However, they still managed to outperform the S&P 500 and the MSCI World Index during this period and they are still in the green in year-to-date terms, according to Lone Pine’s letter to investors for the third quarter. Despite the losses, Lone Pine is still bullish on most of its holdings and projects steady returns for the next several years. In addition to discussing the current environment and projections, Lone Pine also presented the top 20 positions of Lone Cypress and in this article we are going to discuss the five at the top of that list.

Lone Pine is one of over 730 funds that we track as part of our small-cap investment strategy. By analyzing the 13F filings of these elite funds, we determine the collective sentiment these funds have towards different stocks and this allows us to see whether or not they see any long-term value in these companies. However, we focus on their top 15 small-cap ideas, because our research showed that these stocks can provide the highest returns among all the picks of the funds we track. In this way, our strategy has returned 102% since August 2012, outperforming the S&P 500 ETF (SPY) by around 53 percentage points (see more details here).

Priceline Group Inc (NASDAQ:PCLN) represents Lone Cypress’ largest holding, amassing 5.3% of its equity as of the end of September. In its 13F for the second quarter, Lone Pine revealed holding 1.19 million shares of Priceline, which represented its second-largest holding in terms of value. The stock trades at 32.4-times earnings, which is higher than the S&P 500’s average, but is below the industry average, and it has a PEG ratio of around 1.1. The funds from our database are collectively bullish on Priceline Group Inc (NASDAQ:PCLN), as 71 funds reported stakes equal to nearly 13% of the company’s stock as of the end of June. Chase Coleman, another Tiger Cub, is also bullish on Priceline Group Inc (NASDAQ:PCLN), with Tiger Global Management disclosing ownership of 727,939 shares as of the end of June.

On the second spot is Amazon.com, Inc. (NASDAQ:AMZN), in which Lone Cypress’ holding is equal to 4.2% of its equity. However, Lone Pine did not disclose holding shares of Amazon in its previous 13F. Following solid financial results for the third quarter, Amazon’s stock jumped by over 10% and sent the shares’ year-to-date gain to over 100%. Amazon.com, Inc. (NASDAQ:AMZN) represents a good bet since the company is not only one of the leaders in the e-commerce space, but is also making significant progress with its Amazon Web Services segment in the cloud-computing industry. Amazon is trading at a huge 85-times forward earnings, but investors also anticipate significant growth, since it also has a PEG ratio of under 1.0. In the current round of 13F filings, billionaire Ken Fisher’s Fisher Asset Management reported holding some 2.50 million shares of Amazon.com, Inc. (NASDAQ:AMZN).

On the following page, we are going to discuss the other three picks of Lone Cypress, namely JD.Com Inc (ADR) (NASDAQ:JD), Charter Communications, Inc. (NASDAQ:CHTR), and Microsoft Corporation (NASDAQ:MSFT).

JD.Com Inc (ADR) (NASDAQ:JD) represented Lone Pine’s top holding at the end of June, the fund reporting ownership of 41.89 million shares. In the letter to investors, the fund said that the stake in JD.Com Inc (ADR) (NASDAQ:JD) amassed 4.0% of Lone Cypress’ equity. The stock lost 16% in the last three months, but it is still 19% in the green year-to-date, which is pretty good taking into account the current issues in China. As one of the largest e-commerce companies in China, JD.Com operates in the largest retail market in the world, which is why investors are bullish on it. At the end of June, 75 funds from our database held over 25% of JD.Com Inc (ADR) (NASDAQ:JD)’s outstanding stock.

Lone Cypress’ holding in Charter Communications, Inc. (NASDAQ:CHTR) also amassed 4.0% of its equity, while Lone Pine reported holding 5.38 million shares of the company as of the end of June, up by 61% on the quarter. In addition, the fund disclosed a position of call options underlying 3.05 million shares. The stock is up by 15% year-to-date and the upcoming finalization of its acquisition of Time Warner Cable will most likely bring further growth as the company consolidates its position among cable service providers. However, the whole Pay TV industry is in decline at the moment and even though Charter Communications, Inc. (NASDAQ:CHTR) has reported the addition of 12,000 video customers in the third quarter, there are still concerns that customers are ditching cable. Nevertheless, Charter is dealing with the situation and intends to diversify into wireless. Warren Buffett is also betting on Charter Communications, Inc. (NASDAQ:CHTR) as in his holding company Berkshire Hathaway’s 13F filing for the June quarter, it disclosed ownership of 8.51 million shares.

Finally, Microsoft Corporation (NASDAQ:MSFT) ranked as Lone Cypress’ fifth-largest holding, amassing 3.9% of its equity. Between April and June, Lone Pine added around 12.11 million shares to its stake in Microsoft, reporting holding 26.60 million shares as of June 3o. In addition, it held call options underlying 2.83 million shares. In a declining PC market, Microsoft Corporation (NASDAQ:MSFT) seems to be doing well with its transition towards cloud and software. Moreover, its Windows 10 operating system was well received by users and its Surface Book laptop also sparked a lot of discussion. Microsoft’s stock is relatively cheap, trading at under 19-times forward earnings. Fisher Asset Management is also betting on Microsoft Corporation (NASDAQ:MSFT), owning 17.98 million shares as of the end of September.

Disclosure: None