Billionaire Stephen Mandel of Lone Pine Capital was active
last quarter, selling off his entire stake of the tech giant
while also making big bets in the discount retail sector.
Mandel manages some $17 billion, with a personal wealth of
one-tenth that. Mandel and Lone Pine employ a "bottom-up"
approach to investing, having returned an annualized 23% from
2000 through 2010, and beaten the S&P 500 index by more than
20 percentage points per year on average. He made a number of
other moves last quarter, let's check out a few top changes to
Throwing Away an Apple
In its most notable fourth-quarter selloff, Mandel's firm
divested its entire stake in Apple Inc. At the end of the third
quarter, Apple Inc. was Mandel and Lone Pine's ninth-largest
holding. The selloff comes as concerns over Apple's growth mount.
The company managed to grow sales by 45% in 2012, but it's only
expected to grow its top line by 14% in 2013.
Apple sounds cheap at only 10 times earnings, but in reality,
it's right in line with the average P/E for the other major tech
companies, such as Dell, Microsoft, and Intel.
One of Mandel's big additions was
which is now his firm's 22nd largest holding. The social network
appears to have some serious growth opportunities, and investors
are taking notice, with the stock rallying 20% over the last six
months. Facebook reported EPS of $0.17 in the fourth quarter of
2012, which was up 13% from the same quarter last year, and up
41% from the previous quarter.
What's most impressive about the growth is that advertising
revenue rose 43% year over year, and now represents 84% of total
revenue. Even with a rapidly growing user base, the company
managed to increase average revenue per user by 11% last quarter.
Advertising remains one of Facebook's biggest opportunities.
ZenithOptimedia forecasts that online ad spending will overtake
newspaper ads in 2013, and eventually overtake both newspaper and
magazine ad spending by 2015. Moreover, this will equate to about
25% of total ad spending being spend on the internet by 2015.
I'll Buy That for a Dollar
Two of Mandel's big increases came in the discount retail
Mandel and Lone Pine increased their stake in
) by 61%, and the company now makes up the fifth spot in their
portfolio. Dollar General is the leading U.S. discount retailer,
with some 10,000 stores in 40 states.
The company expects to see net sales up 9% in fiscal year 2014
(ending January), which will be driven not only by higher store
traffic, but also by higher transaction sizes. Dollar General
expects to expand its product offering to alcohol and tobacco
products in 2014. This should help counter margin pressures
arising from the retailer's recent offering of faster-selling
Mandel also notably increased Lone Pine's investment in
), with a 203% increase in shares owned since the previous
quarter. The stock now ranks 11th in Lone Pine's portfolio.
Although the company does not have as robust a store count as
Dollar General, Dollar Tree does have stores in Canada, with a
total of 4,500 spread across that country and the U.S. The
company has plenty of room to grow, and plans to capitalize by
growing square footage by 7% in fiscal 2014 (which ends next
January). Based on its industry-best growth and return on
investment, I think Dollar Tree is the best-of-the-industry pick.
A Bigger Stake in Broadband
One of Mandel's biggest increases was
representing a 1,368% increase from fourth quarter shares. It now
occupies the 19th spot in Lone Pine's portfolio. Charter is still
a leading broadband communications company and the fourth-largest
cable operator in the U.S. It's worth noting that the cable
company is a low-volatility play, with a beta of only 0.7.
Charter's revenues are expected to be up 4% and 5% in 2013 and
2014, respectively, thanks to additions to its high-speed
residential data services. The company expects to add some
325,000 to 350,000 subscribers per year over the interim.
Analysts also expect the company's EPS to start recovering. Its
2012 EPS came in at a $3.05 loss, but 2013 is forecasted at a
negative $1.43, and 2014 is a positive $1.20.
Don't be Fooled
Mandel fell out of love with Apple Inc. entirely, but he appears
to have found value in Facebook. I would tend to agree that the
uncertainty surrounding Apple warrants a "wait and see" approach.
Meanwhile, the prospects and improving financials at Facebook
might make for a compelling investment. I still believe that both
of Mandel's discount retail picks will perform well despite a
rebounding economy, and I think the competition related to
Charter's business might continue pressuring the company in the
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