Billionaire Stephen Mandel has some $17 billion in assets under management, and founded Lone Pine Capital in 1997. This Tiger cub (former Tiger Management employee) is a “bottom-up” investor with great stock-picking skills. Outlined below are some of Mandel’s most interesting moves during the first quarter (see Mandel’s top stocks).
Tech trade-up
Mandel traded out Apple Inc. (NASDAQ:AAPL) for Google Inc (NASDAQ:GOOG) last quarter. At the end of 2012, Apple was Lone Pine’s top stock holding, and now Google is on top and makes up approximately 3.7% of its portfolio.
Revenue is expected to be up 15% in 2013 and 16% in 2014 as Google Inc (NASDAQ:GOOG) maintains its strong hold in search and advertising. Google owns some 67% of the U.S. search market share, and eMarketer believes Google will own 73.7% of search ad revenue in 2013.
Google Inc (NASDAQ:GOOG)’s 2012 purchase of Motorola Mobility for $12.5 billion should help the search giant hold its market position. The Motorola purchase will hopefully protect Google’s position in mobile OS (Android) and mobile search, where the tech company will have its own hardware, and will not have to rely on other mobile phone makers.
Google Inc (NASDAQ:GOOG) has some of the highest hedge fund interest among all stocks. Going into the second quarter there were a total of 148 hedge funds long the stock, with Lone Pine Capital having the largest position in the tech giant. In second was Lansdowne Partners, with a $635 million position, making up 8.7% of its 13F portfolio (see Lansdowne’s bullish bets).
Tax time
H&R Block, Inc. (NYSE:HRB) was one of Lone Pine’s big additions, now the fund’s second largest holding and making up approximately 3.4% of the portfolio. H&R Block is a major provider of tax-preparation services.
H&R Block, Inc. (NYSE:HRB) remains an income and growth play, paying investors a 2.7% dividend yield. In addition, the stock offers investors a very impressive return on equity at 37.4%. Since 2005, the company’s dividend has grown at an average annual rate of 8%, and H&R has paid dividends over the last 202 consecutive quarters.
H&R Block, Inc. (NYSE:HRB) is also cutting expenses and undergoing a restructuring, which includes reducing its workforce and cutting overhead expenses. Specifically, this includes slashing 350 positions and closing 200 under-performing offices. This will help drive the companies margins higher, with annualized savings of $85 to $100 million by the end of fiscal year 2013. Analysts expect the company to grow EPS by an annualized 12% over the next five years.
Coffee craze
One of Lone Pine’s big additions is Dunkin Brands Group Inc (NASDAQ:DNKN), making up 2.7% of the fund’s portfolio. Dunkin is still in all-out growth mode, even with more than 10,500 Dunkin’ Donuts and 7,000 Baskin-Robbins’ locations.
Dunkin managed to post first-quarter EPS of $0.29 compared to $0.25 for the same period last year, on the back of a 6.2% rise in total sales. Dunkin added an impressive 108 net stores during the first quarter, but still has tremendous room to grow in the Western U.S. and internationally.
Revenue is expected to be up 7.3% in 2013, after a 4.8% increase in 2012, which will be driven by a higher store count. This should come even as its Baskin-Robbins’ stores continue to see weakness. However, one of Baskin’s initiatives is to boost sales by rolling out “shelf stable sherbet flavored freezer bars” at CVS Caremark Corporation (NYSE:CVS), Dollar General Corp. (NYSE:DG), Walgreen Company (NYSE:WAG) and Rite Aid Corporation (NYSE:RAD).
Banking on banking
Meanwhile, another new addition was Citigroup Inc. (NYSE:C), making up 2.7% of Lone Pine’s portfolio. Citi is one of the major banks, and one that saw some of the most pressure related to the financial crisis with the stock still down 75% over the past five years. After the 2013 stress test, Citi got approval for $1.2 billion in share repurchases through the first quarter of 2014.
Even though Citi appears expensive from a P/E basis, on a price-to-book basis, the bank trades at a 36% discount to the industry average. Citigroup Inc. (NYSE:C) still trades at 80% of book value, well below other major banks.
Citigroup Inc. (NYSE:C) does command impressive hedge fund interest. At the end of the first quarter, a total of 118 hedge funds were long the stock, with notable activist investor Pzena Investment Management holding the most valuable position, worth $397 million (check out Pzena’s portfolio).
Bottom line
Billionaire Mandel traded out Apple for Google, a move which I am a fan of. I believe that Google’s products are stickier and integrated more deeply in users’ lives, when compared to Apple.
H&R Block, Inc. (NYSE:HRB) is a solid income/dividend play that should continue to grow, given tax filings are mandatory and let’s face it, it’s much easier to have someone else do it for you. As for Mandel’s last two picks, I believe that Dunkin has tons of room to grow, while also believing that Citigroup Inc. (NYSE:C) might be undervalued given its strong capital positioning and low P/B.
Marshall Hargrave has no position in any stocks mentioned. The Motley Fool recommends Google. The Motley Fool owns shares of Citigroup Inc (NYSE:C) and Google.
The article Billionaire Stephen Mandel’s Top Moves originally appeared on Fool.com.
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