5 New Picks Made by This Billionaire Last Quarter
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Billionaire and Tiger Cub Stephen Mandel, with nearly $17 billion of assets under management, left his mentor Julian Robertson in 1997 to launch Lone Pine Capital. Hedge funds and other notable investors required to report their long holdings to the SEC do so quarterly with 13F filings. The most recent third quarter 13F for Mandel’s Lone Pine showed a number of shakeups in its portfolio. We have identified Mandel’s five largest stocks that were new positions for Lone Pine during the third quarter (Check out the big tech stocks billionaire Mandel was selling in 3Q).
Mandel’s largest new stock pick was Schlumberger (NYSE: SLB), which is now the 12th largest 13F holding for Mandel, making up 2.8% of Lone Pine’s 3Q 13F. Schlumberger provides products and services to the oil and gas industry, and as a result is tied to its performance quite heavily. Schlumberger is expected to grow revenues at 8% in 2012 and 12% in 2013 on the back of elevated oil prices and production.
Compared to other notable industry operators, Halliburton Company and National Oilwell, Schlumberger trades on the high end at 17x earnings, with the other two trading below 13x. We believe the oil and gas company’s international focus warrants this premium, given its greater geographical diversification. On a forward-looking basis, the oil products company only trades at 14x year-ahead earnings.
Another new position for Mandel in 3Q was VeriSign (NASDAQ: VRSN), also around 2.8% of Lone Pine’s 13F. VeriSign is trading around $40, off from its $50 high for the year, despite the tech company’s reassurance that the DOC will approve its key contract for servicing .com and .net registries. Mandel sees as much as 50% upside to the tech company in the next couple years given its cash generating capabilities. Mandel also sees little downside to the stock even if the DOC does make an unexpected decision given VeriSign’s exclusivity in being able to service .com and .net registries. It appears that investors are over discounting VeriSign’s earnings for next year, as it trades at only 19x forward earnings compared to 25x trailing, which means the stock has the potential to surprise investors.
Dunkin' Brands (NASDAQ: DNKN), after a new position in 3Q, now makes up 1.28% of Lone Pine’s 13F. Dunkin’s trailing P/E appears high at 60x, but its forward P/E of 20x helps suppress some overvaluation talks. We like Dunkin’s growth prospects given its potential for expansion in the U.S., not to mention internationally. The quick-stop coffee and food shop is expected to grow revenues by 6.2% in 2013, with sell-side analysts predicting annual EPS growth of 17% over the next five years. New stores and strong comp sales, expected to be up 4% by the end of this year, give us reason to believe that Dunkin' could be a buy. Its forward P/E of 20x is below what Starbucks and Caribou trade at on a trailing basis, 28x and 23x, respectively.
J.B. Hunt (NASDAQ: JBHT), the transportation and delivery company, now makes up 1.2% of Mandel’s 13F holdings. JB Hunt is up over 30% year to date and now trades well above the industry average of around 14.5x with a trailing P/E at 24x. Since 2008, freight volume has been rising, but we see a slowing of freight volume growth for the industry as a headwind for JB. The transporter operates mainly in the U.S. and has high exposure to fuel prices, where the bullish outlook does not bode well for JB’s margins. Interestingly, however, insiders have been buying JB lately.
Mandel appeared to be optimistic about travel stocks in 3Q. Major travel site Priceline.com was his firm’s largest stock holding, and he took a new stake in TripAdvisor (NASDAQ: TRIP), which now accounts for 1.15% of Lone Pine’s 13F. TripAdvisor claims one of the largest online communities as its customer base. The travel website focuses on reviews and advertising, versus facilitating actual travel bookings. This niche should allow the company to grow revenues at an expected 19% in 2012, 17% in 2013 and 15% in 2014. Expedia spun off TripAdvisor last year, but the recent Kayak acquisition could open the door for more industry M&A, and TripAdvisor could be a nice candidate, trading at 20x on a forward-earnings basis.
We believe that Mandel sees strong future demand for oil and gas as the global economy begins to strengthen. Schlumberger has a vast product base, and it still trades relative to the company’s growth prospects. We also like Mandel’s VeriSign thesis, given no other company made a bid for the contract, which would allow the tech company to continue to facilitate registries. Dunkin’s solid growth prospects give good reason to check out the company, but J.B. Hunt’s valuation gives us reason to stay on the sidelines. TripAdvisor operates in a bit more of a niche market than some of the other well known travel websites, given it is more of a marketer, and so we like its prospects and potential as a takeover target.
This article is written by Marshall Hargrave and edited by Jake Mann. They don't own shares in any of the stocks mentioned in this article. The Motley Fool owns shares of TripAdvisor. Motley Fool newsletter services recommend TripAdvisor. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!