Why Investors Should Follow Lone Pine’s Top Picks This Year
Shweta is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Lone Pine is a hedge fund established in 1997, with initial capital of $8 million, which grew to around $19 billion by the first quarter of 2013. The fund uses the fundamental approach of investing in "bottom-up stocks." According to its recent 13F filing with the SEC, Lone Pine increased its investment in Dollar General (NYSE: DG). The fund's top three holdings are Google (NASDAQ: GOOG), Priceline (NASDAQ: PCLN), and Dollar General.
I have analyzed these stocks to find out if there is any opportunity for the investors.
Acquisition to beat competitors
Google has a 93% market share of mobile search in the U.S., and one of the reasons is its Android platform. With the rise in mobile users, it is expected that mobile ad spending will be around $7.29 billion in the current year, a 77% increase year over year in the U.S. Moreover, smartphone users are expected to increase to 1.4 billion in 2015, from 1 billion currently. The total market value of mobile advertisements will be around $26 billion in 2016, from $13 billion in fiscal year 2013.
Google helps its clients in branding, customer engagement, and online and offline sales through its mobile advertisements, and it generates revenue out of it. Looking at the market share of the company and the increasing use of smartphones, it is estimated that its revenue from this segment will grow to $5.9 billion by the end of 2013, a 76% growth year over year.
In June 2013, Google confirmed plans to buy Waze, beating competitors Facebook and Apple. Waze develops mapping and navigation applications for iOS and Android platforms. Google will pay around $1 billion to acquire Waze. There are two reasons for this acquisition:
First, Waze had 36 million users half a year ago and had around 50 million as of May 2013, a 38.9% increase in its user base. Considering the growth rate, it is estimated that the user base will increase to 70 million this year, and to around 200 million in 2015. This will enhance the revenue of Google by $90 million per year from 2015.
Second, Google is positioned well against its competitors, Apple and Facebook. Apple's iOS 6 performed poorly last year; while Facebook, which was betting high to acquire Waze, needed user data to improve its mobile advertising segment.
Leveraging in international markets
Priceline posted a gross profit of $1.3 billion in the quarter ending in March, growth of 26% year over year. The company's international segment contributed $894 million in the same period, which is an increase of around 45% year over year. It expanded its international footprint, as it acquired Booking.com, Agoda, and TravelJigsaw in the last five years. As a result of these acquisitions, 82% of its total bookings come from its international segment.
Booking.com is concentrated in the European market, while Agoda.com is dedicated to Asian markets. Internet penetration is highest in European countries, while Asian countries have 27.5% Internet penetration. These factors will give broader market space to Priceline and by the end of this year, it will generate revenue of $6.12 billion from its international segment, up from $5.13 billion in the previous fiscal year.
Priceline recently completed its acquisition of Kayak for $1.8 billion. Kayak is a global, leading metasearch company, and with this, Priceline will be able to expand its product offerings and will strengthen its mobile app portfolio. With this acquisition, Priceline will enter the metasearch space in the U.S.
Metasearch is a search tool that sends requests of the users to a few other search engines, collects data, and displays them in a single list. Metasearch is an integral part of online travel booking. The compounded annual growth rate of Kayak was 47% from 2007-2012 and the U.S. market contributes 80% of its total revenue. Moreover, the metasearch market of the U.S. is dominated by Kayak, with 50% market share.
As a result of this acquisition, it is expected that Priceline's revenue from the U.S. will surge from 2013. In the first quarter of 2013, Kayak processed around 358 million queries, which is an increase of 18% year over year, and three million Kayak apps were downloaded in the same period.
The rollout of tobacco products
One-third of the total transactions at Dollar General stores involved tobacco-related products in the first quarter of 2013. Its stores reported 33% more tobacco sales than first estimated by the company.
Dollar General has been testing cigarette sales in Florida since April. Seeing the initial success, the company plans to sell tobacco products in all of its 10,500 stores in the U.S. by the end of June. This will also lead to an increase in customer traffic, which will result in an increase in non-tobacco-related product sales. The total revenue of the company is expected to increase by $160 million in the third quarter of 2013.
Dollar General's revenue in the first quarter surged to $4.23 billion, up by 8.5% year over year. The same-store-sales also increased by 2.6% during the same period. One of the factors for this rise in the revenue was the tough economic scenario. As a result, the consumer shifted to reasonably-priced stores offering daily deals and discounts. From fiscal year 2009 to 2012, the net income of Dollar General surged from $108 million to $953 million, growth of 782.41%.
The U.S. economy is still in recovery, and hence investors can anticipate increasing revenue trends to continue in the upcoming quarters for Dollar General.
Increasing use of smartphones and the acquisition of Waze is expected to enhance the profits of Google. Also, Waze’s acquisition will give competitive advantages to Google.
The acquisition of Kayak will be beneficial for Priceline, as it will bring additional customers and increase the footprint of the company. Moreover, the international business of Priceline will surge because of its global acquisitions.
The rollout of tobacco products and the uncertain U.S. economy will result in increasing sales for Dollar General, and these factors will foster the future growth of the company.
I recommend buying all three stocks for the long-term growth opportunity.
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Shweta Dubey has no position in any stocks mentioned. The Motley Fool recommends Google and Priceline.com. The Motley Fool owns shares of Google and Priceline.com. 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!