Billionaires Julian Robertson and Stephen Mandel Like These Stocks

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Six to seven weeks after the end of each quarter, hedge funds and other major investors file 13Fs with the SEC to disclose many of their long equity positions as of the end of that quarter. We compile many of these filings into our database, which allows us to analyze them as a group and develop investment strategies; for example, we have found that the most popular small cap stocks among hedge funds earn an average excess return of 18 percentage points per year (learn more about our small cap strategy).

We can also use our database to compare the holdings of different fund managers and see what they have in common. Before Stephen Mandel of Lone Pine Capital became a billionaire himself, he worked for legendary investor Julian Robertson at Tiger Management making him one of the “Tiger Cubs.” Here are five stocks which both Lone Pine and Robertson reported owning at the end of December (or see the full list of stock picks from Mandel and from Julian Robertson):

Both Robertson and Mandel had Google (NASDAQ: GOOG) among their top ten picks, with Lone Pine actually having it as its largest holding. Google had also been one of the most popular stocks among hedge funds in the fourth quarter of 2012. The company is expected to grow its earnings both through its advertising business and from better integrating Motorola Mobility Holdings. Analyst expectations imply a forward P/E of 16, and though we wouldn’t take that quite at face value Google may still be a good “growth at a reasonable price” stock.

Priceline (NASDAQ: PCLN) was another of Mandel’s favorite stocks, and Robertson owned about 30,000 shares at the end of the fourth quarter. Priceline is popular among Tiger Cubs; John Griffin’s Blue Ridge Capital was another major holder of the stock. At 26 times trailing earnings Priceline is a growth play, but recent financial performance has been very strong: last quarter the company experienced 20% revenue growth versus a year earlier, and net income was up 28%. It’s another company whose growth prospects might make it fairly valued.

$38 billion market cap pipeline company Kinder Morgan (NYSE: KMI) was another common pick between Robertson and Mandel. The stock’s forward P/E is 26, so again these investors are dependent on future growth to justify the current stock price, but Kinder Morgan does have the potential to benefit from growth in domestic oil and gas infrastructure. They are joined in Kinder Morgan by billionaire Leon Cooperman’s Omega Advisors, which had 5 million shares in its portfolio according to its own 13F.

Both investors sold a small portion of their stake in Qualcomm (NASDAQ: QCOM) but Robertson and Mandel still each had the communications equipment company as one of their twenty largest holdings by market value. Qualcomm joined Google on our list of the ten most popular tech stocks among hedge funds for the fourth quarter. The stock carries trailing and forward P/E multiples of 18 and 14, respectively, so growth expectations are more modest here and as a result the valuation is cheaper than at some of these other companies.

Mandel and Robertson were both buying Verisign (NASDAQ: VRSN) between October and December. Verisign provides Internet registry services; its stock price dived late last year after regulators limited its price increases, but a 29% rally has carried it close to all time highs. Revenue and earnings grew at double-digit rates in the fourth quarter of 2012 versus a year earlier, though the trailing P/E of 24 already incorporates considerable future growth. Warren Buffett initiated a position in Verisign last quarter, as Berkshire Hathaway’s 13F disclosed ownership of 3.7 million shares (find more stocks Buffett was buying).

As a general rule, the stocks that Mandel and Robertson agree on aren’t cheap and generally trade at more than 20 times their trailing earnings. Certainly in the case of Priceline we can see the company’s growth prospects, and the same is the case of Kinder Morgan; Qualcomm has a lower bar set for it in the market. Google and Verisign, while still intriguing, seem a bit more speculative to us as the first one must finish its integration process and the second is exposed to pricing regulations. At this point we would wait before initiating any positions in these stocks.


This article is written by Matt Doiron and edited by Meena Krishnamsetty. Meena has a long position in Google. The Motley Fool recommends Google, Kinder Morgan, and Priceline.com. The Motley Fool owns shares of Google, Kinder Morgan, Priceline.com, and Qualcomm. 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!

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