Lone Pine owned 4.3 million shares of Ralph Lauren Corp (NYSE:RL) at the end of the quarter. The stock is a bit expensive in value terms, trading at 21 times trailing earnings, and in its most recent quarter revenue and earnings were both down from a year earlier. Fellow Tiger Cub John Griffin’s Blue Ridge Capital increased its own stake in Ralph Lauren by 75% between July and September (check out Griffin’s favorite stocks). Analyst expectations are that earnings will improve in 2013, bringing the forward P/E multiple to 16, but we still think that we would avoid the stock.
Another retailer among Lone Pine’s top ten picks was The Gap Inc. (NYSE:GPS), with the fund still owning over 16 million shares despite being a seller during the quarter. Gap’s stock has had a great year, up 71% from this point in 2011, but because net income has also skyrocketed the earnings look fairly good: Gap carries trailing and forward P/Es of 15 and 12, respectively. We are a bit concerned that revenue growth has lagged- which suggests that earnings growth might not be sustainable- but the company only needs modestly higher numbers to justify its valuation. ESL Investments, managed by billionaire Eddie Lampert, also sold shares but Gap was still its third largest holding at over 19 million shares (find more of Lampert’s favorite stocks).
The fund reported a position of 8.8 million shares in Michael Kors Holdings Ltd (NYSE:KORS). The stock price here has doubled in the last year, as the growth company has at least demonstrated that it can continue to increase its earnings. In the quarter ending in September, revenue was up 74% versus a year earlier which led to net income rising 141%. As might be expected, the valuation already captures quite a bit of future growth- the trailing P/E is 39- but Lone Pine apparently believes that Kors can hold onto its growth trajectory. We’d be wary as we just aren’t sure that the company will succeed in doing so, but given the recent growth rate we certainly wouldn’t be short.
Mandel and his team more than doubled their stake in Dollar General Corp. (NYSE:DG), suggesting that they see opportunities at the lower end of retail as well as at more upscale shops like Kors. Dollar General, as might be expected, has a very low beta of 0.1. Its revenue and earnings were up at double-digit rates in its most recent quarter compared to the same period in the previous year, yet the stock has trailing and forward P/E multiples in the teens and a five-year PEG ratio of 0.9. With attention on dollar stores fading, but growth continuing, it or its peers might make good value stocks.
Lone Pine also liked growth play Lululemon Athletica inc. (NASDAQ:LULU), adding to its position and closing September with 4.8 million shares in its portfolio. 21% of the outstanding shares are held short, as traders eye the trailing P/E of 46 and in some cases speculate that the yoga wear craze powering much of Lululemon’s growth might be a fad (or at least vulnerable to competition). Revenue and earnings growth has been in the 40-50% range, and as with Kors while we would hesitate to go long we’d consider a short position too risky.
