Billionaire Stephen Mandel has some $17 billion in assets under management. Mandel is also a Tiger cub, leaving Julian Robertson’s Tiger Management in 1997 to launch Lone Pine Capital. Mandel and his fund use a “bottom-up” approach to stock picking. Outlined below are Lone Pine’s top four picks per its recent filing with the SEC (check out Mandel’s top stocks).
Online travel
Lone Pine’s top stock pick is Priceline.com Inc (NASDAQ:PCLN), which makes up 6.3% of its public- equity portfolio. Priceline has three major product lines, including hotel rooms, rental cars and airline tickets. Priceline’s business model is also advantageous, given it can cater to both high-end and cost-conscious customers. Priceline’s opaque model allows it to sell excess room nights to cost-conscious customers at a discount.
Priceline.com Inc (NASDAQ:PCLN) also trades at only 27.7 times earnings, compared to major peers: Tripadvisor Inc (NASDAQ:TRIP) trades at 42 times, and Expedia Inc (NASDAQ:EXPE) at 46.8 times.
Big bet on search
Lone Pine’s second-largest holding is Google Inc (NASDAQ:GOOG), making up 5.7% of the fund’s portfolio. Google is know for search, but its enterprise business goes well beyond this, and includes apps like Gmail, Google Docs, Google Calendar, and Google Sites.
Google Inc (NASDAQ:GOOG) also now has wireless devices from its Motorola Solutions Inc (NYSE:MSI) purchase. While Google dominates search on desktops, mobile will be the key growth segment. One of Google’s big advantages is its ability to leverage its Android OS to maintain its search-market leadership, regardless of the platform. Google Inc (NASDAQ:GOOG)’s Android OS has around 50% of the U.S. mobile search market share.
eMarketer projects Google’s growth in the U.S. display-ad segment to be fastest- growing platform over the next few years, compared to the likes of Facebook Inc (NASDAQ:FB) and Yahoo! Inc. (NASDAQ:YHOO). The research firm expects Google Inc (NASDAQ:GOOG) to take 21% of the market by 2014. Facebook is expected to fall to 16% of the market share, and Yahoo! to 7%
Buying retail at a discount
The third-largest Lone Pine holding is the discount retailer Dollar General Corp. (NYSE:DG), which accounts for 3.7% of the portfolio. The company is performing well given the tough economic environment, which has forced consumers to trade down. The retailer is expected to produce sales growth of 11% in fiscal 2014 on the back of 5.3% same-store sales growth.
Dollar General Corp. (NYSE:DG) is also looking to offer alcohol and tobacco products, which should help generate higher traffic and larger average transaction sizes. As well, Dollar General should continue dig deeper into consumers’ wallets with its offering of consumables and expanded health and beauty-aid products. Growth still appears apparent for the company, with plans to expand into California and the Northeast during fiscal year 2014.
In preparation for this quarter, a total of 61 hedge funds were long the stock, a 30% increase from one quarter earlier. Lone Pine had the largest position in the stock, while other hedgies holding long positions include Bain Capital’s Brookside Capital and Chase Coleman’s Tiger Global Management (check out Tiger Global’s top tech picks).
Betting on apparel
Rounding out the top four was The Gap Inc. (NYSE:GPS), which made up 3.7% of the 13F portfolio. Gap is a leading retailer in the specialty apparel sector, owning the Gap, Old Navy and Banana Republic brands. As well, the company is globally recognized, having brands that complement each other and catering to a wide audience.
