Hedge Fund Tracking: Lone Pine Capital's 13F (Stephen Mandel Jr.)

Full Credit for this Post should go to Market Folly

http://marketfolly.blogspot.com/


The Hedge Fund 13F Tracking series continues. If you've missed them, I've already covered Jeffrey Gendell's Tontine Partners here, Bret Barakett's Tremblant Capital here, Peter Thiel's Clarium Capital here, and John Griffin's Blue Ridge Capital here. Next up, we have Lone Pine Capital, managed by Stephen Mandel Jr. Lone Pine is an $8 Billion fund that has returned over 25% annually ever since its inception in 1997. Why is Mandel worth following you might ask? Well, he served as a consumer/retail analyst for Tiger Management back in the day for legendary investor Julian Robertson. Robertson's proteges/right-hand men have been nicknamed the "Tiger Cubs" and many have started their own funds. So, not only has Mandel learned from one of the best, but he has put up some very solid returns himself. Mandel is well versed in the ways of finding undervalued companies and his funds typically like to sniff out solid companies with good management that are trading below their intrinsic value. Just this past year 1 of his funds was up 34% before fees while another was up 32% before fees. His track record speaks for itself. And, not to mention, he learned from one of the greats in Julian Robertson. However, as I wrote about here, Lone Pine has had a rough 2008, where their Lone Cedar Fund was -5.38% year to date (as of the middle of July '08). By analyzing their 13F, maybe we'll be able to see where they are slipping up.

Once again, I'd like to give thanks to Alex Prywes for helping me gather and sort through the data of numerous hedge funds (including the one below). Thanks to Alex's help, we can now cover even more funds. And, on that note.... onto the 13F! The following are Lone Pine Capital's current holdings as of June 30th 2008, as released in their most recent 13F filing with the SEC. The positions in this most recent 13F were compared to last quarter's 13F and here are the changes made to their portfolio:

New Positions:
Entergy Corp (ETR): 3,518,632 shares. This position is 6.06% of Lone Pine's portfolio.
Weatherford Intl (WFT): 4,820,337 shares. This position is 3.42% of Lone Pine's portfolio.
Lorillard Inc (LO): 3,328,911 shares. This position is 3.29% of Lone Pine's portfolio.
Amazon (AMZN): 2,527,634 shares. This position is 2.65% of Lone Pine's portfolio.
Sears Holdings Corp (SHLD) Puts: 1,336,800. This position is 1.41% of Lone Pine's portfolio.


Added to:
America Movil (AMX): Increased position by 39.5%. Position is now 10.74% of their portfolio.
Sandridge Energy (SD): Increased position by 22.24%. Position is now 11.35% of their portfolio.
SAIC (SAI): Increased position by 16.38%. Position is now 2.45% of their portfolio.
Dicks Sporting Goods (DKS): Increased position by 15.8%. Position is now 1.48% of their portfolio.
XTO Energy (XTO): Increased position by 5.41%. Position is now 8.33% of their portfolio.


Reduced Positions:
CB Richard Ellis (CBG): Reduced their position by 9.62%. Position is now 2.94% of their portfolio.
Illumina (ILMN): Reduced their position by 9.97%. Position is now 2.69% of their portfolio.
Fastenal (FAST): Reduced their position by 12.5%. Position is now 3.78% of their portfolio.
Qualcomm (QCOM): Reduced their position by 13.88%. Position is now 7.26% of their portfolio.
Brookfield Asset Mgmt (BAM): Reduced their position by 16.4%. Position is now 3.26% of their portfolio.
Monsanto (MON): Reduced their position by 25.82%. Position is now 3.27% of their portfolio.
Mastercard (MA): Reduced their position by 29%. Position is now 2.48% of their portfolio.
Priceline (PCLN): Reduced their position by 30.75%. Position is now 2.34% of their portfolio.
Google (GOOG): Reduced their position by 39.30%. Position is now 7.39% of their portfolio.
Infosys (INFY): Reduced their position by 49.1%. Position is now 2.19% of their portfolio.
Visa (V): Reduced their position by 57.38%. Position is now 1.93% of their portfolio.
Sears Holdings (SHLD) Puts (2nd put position): Reduced their position by 79.73%. Position is now 0.21% of their portfolio.


Removed Positions (Positions Lone Pine sold out of completely):
Apple (AAPL)
Brookfield Asset Management (BAM) - 2nd listed position
CME Group (CME)
EMC Corp (EMC)
Nutrisystem (NTRI)
Southwestern Energy (SWN)
SRA International (SRX)


Positions with no change:
MSC Industrial Direct (MSM). Position is 3.26% of their portfolio.
Teradata (TDC). Position is 3.06% of their portfolio.
Eagle Materials Inc (EXP). Position is 1.66% of their portfolio.
Bunge (BG) Puts. Position is 0.85% of their portfolio.
Deltek (PROJ). Position is 0.24% of their portfolio.
New York Times (NYT) Puts. Position is 0.02% of their portfolio.


Top 10 holdings by % of portfolio:
1. Sandridge Energy (SD): 11.35% of the portfolio
2. America Movil (AMX): 10.74% of the portfolio
3. XTO Energy (XTO): 8.33% of the portfolio
4. Google (GOOG): 7.39% of the portfolio
5. Qualcomm (QCOM): 7.26% of the portfolio
6. Entergy (ETR): 6.06% of the portfolio (new position)
7. Fastenal (FAST): 3.78% of the portfolio
8. Weatherford Intl (WFT): 3.42% of the portfolio (new position)
9. Lorillard Inc (LO): 3.29% of the portfolio (new position)
10. Monsanto (MON): 3.27% of the portfolio

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Breakdown: Well, it's very evident where Mandel & Lone Pine's poor performance is coming from. As of June 30th, they had massive holdings in natural gas and oil players Sandridge Energy (SD) and XTO Energy (XTO). SD was their top holding by % value and XTO was not far behind as their 3rd largest holding. The selloff in natural gas, oil, and all related stocks has undoubtedly affected Lone Pine in a negative way. The selloff in those names started around July, leaving Mandel a very limited window of opportunity to sell. Unfortunately, we'll have to wait until the next round of 13F's in the coming quarter to find out what Mandel has done with his large natural gas positions. Considering that the filing reports holdings as of June 30th, and the major selloff began in July, we have no idea whether Lone Pine was massively hurt by the selloff, or whether they were one of the parties responsible for the selloff. But, no matter how savvy Mandel may be, there is no way he got through July unscathed. So, that looks to be one of the main areas contributing to the lackluster performance of his Lone Cedar Fund so far in 2008.

Next, I want to highlight that Lone Pine added to their America Movil (AMX) position by 39%, nearly doubling down on their shares. Obviously, Mandel still likes the company and was using the weakness to add to his position. His addition is interesting, considering numerous hedge funds completely removed their AMX position over the past quarter, including his 'Tiger cub' buddy John Griffin over at Blue Ridge Capital. AMX has long been a hedge fund favorite and has been a top 10 holding in many prominent hedge fund portfolios over the past year. But, with the recent developments in AMX over the last few months, many hedge funds have taken action. And, unlike his colleagues, Mandel was buying the shares that other fund managers were selling off. It will be interesting to see how this continues to play out, as the once hedge fund favorite AMX may be falling out of favor with numerous managers. Lone Pine, however, was adding with conviction, making it their portfolio's 2nd largest position.

I would also like to highlight a couple of new positions started by Lone Pine this past quarter. They added Entergy (ETR) in mass, making it their 6th largest holding at 6.06% of their overall portfolio. In the past, I've talked about ETR on the blog as a way to play both the rising demand in electricity as well as the nuclear space in alternative energy. In addition to starting ETR, they started Weatherford (WFT), an equipment and service provider in the oil and natural gas spaces. They brought this position up to the fund's 8th largest holding at 3.42% of their portfolio. Additionally, they started a position in Lorillard (LO), a cigarette manufacturer. They brought this name up to the 9th largest fund holding, at 3.29% of the portfolio. Mandel added ETR, WFT, and LO all with conviction over the past quarter, landing all three as top 10 holdings.

Turning to tech, we see that Lone Pine has sizable positions in hedge fund favorites like Google (GOOG) and Qualcomm (QCOM). However, Lone Pine was selling off some of their tech holdings during the past quarter. They sold 13% of their QCOM position, leaving it as the fund's 5th largest holding. Mandel got aggressive with Google (GOOG) though, selling nearly 40% of his position. Despite the selling, it still remains their 4th largest holding. That just goes to show how large of a position he had in GOOG. Additionally, he sold completely out of Apple (AAPL). Just last quarter, it was his fund's 5th largest holding. Now, he no longer even holds a position.

Lone Pine was also busy selling the payment processors Mastercard (MA) and Visa (V). They sold 30% of their position in MA and 57% of their position in V. You can't really blame them though, as they were sitting on some handsome profits from those positions. We'll keep an eye out to see if they add back to their positions now that MA and V trade at cheaper prices than they did 2 months ago. After all, the payment processors are big hedge fund favorites, having appeared in numerous funds' portfolios.

Overall, its easy to see where Lone Pine might be struggling this year. They've been rewarded with nice gains in some of their tech and payment processing holdings. But, those gains could have been easily nullified by the likely beating their natural gas and oil holdings took. If you are interested in further comparing Lone Pine's holdings, you can check out the analysis I did of their previous 13F here. Lastly, in a recent development, Lone Pine recently filed a 13G with the SEC, disclosing their minority stake in Hansen Natural (HANS), which I wrote about here.

And, you can view their most recent 13F as filed with the SEC here.

A little Vindication For My Bearish Oil Call

Yesterday, Crude Oil hit $122/ barrel and today we have it trading at $114.63. That's already more than $7 lower from yesterday's high.

The rally we saw less than 24 hours ago was Russia-U.S. fear driven and not insight on demand building. Now that Tropical Storm Fay is looking less and less destructive while tension are easing in Georgia, we are seeing oil fall closer to a Supply/Demand equilibrium.

The sell-off in commodities is the reason I haven't recommended Foster Wheeler (FWLT) even at these level. This stock moves in tandum with oil, although earnings shouldn't. I won't fight the tape.
However, when FWLT falls below $45, the risk-reward ratio looks great.

Bill Gates Buys More Republic Services (RSG)

For those unfamiliar with the company :

Republic Services, Inc. provides nonhazardous solid waste collection and disposal services for commercial, industrial, municipal, and residential customers in the United States. The company primarily engages in residential collection operations that include curbside collection of refuse from small containers into collection vehicles for transport to transfer stations or directly to landfills. Its commercial and industrial collection operations include the supply of waste containers of various sizes to construction sites and rental of compactors to large waste generators, as well as the provision of waste collection services to industrial and construction facilities on contractual basis. In addition, the company provides recycling services, including the curbside collection of residential recyclable waste to commercial and industrial customers.


Waste management (WMI) is currently trying to buy RSG for $6.73 billion dollars. RSG claims the bid significantly undervalues the company. At the same time, RSG is trying to purchase Allied Waste Industries (AW) for $6.07 billion.

Bill Gates Foundation, Cascade Investment LLC, has bought 3,080,991 shares for a total of $106,976,640 brining the average price to $34.72.

Cascade Investment now owns a total of 31,395,240 shares.

Boeing (BA)To Start Talk with Union

Boeing (BA) will begin negotiations with its union machinists in order to avoid a potential strike as it hopes to make inroads against mounting pension and health-insurance costs, reported The Wall Street Journal. The International Association of Machinists and Aerospace Workers will seek improved policy on health care, pensions and job security.


Last I checked, the machinists are making around $21 on average and nearing retirement within a decade. More pay probably isn't as important as job security.

Last time there were major talks with the union was after 9/11 where they made large concession. Now they are again negotiating in a tough economy- I guess these guys have no luck at all. I think that completing deliveries is to important for BA not to make concession. I am also a believer in happier employees being more productive, so I expect the extra costs to be made up along the chain.

Crude Oil Finding a Bottom?

UPDATE: OIL FUTURES: Nymex Crude Falls On Huge Stockpile Gain

(Updates prices and tropical storm forecast; adds background on U.S. crude imports)

By Gregory Meyer

Of DOW JONES NEWSWIRES

NEW YORK (Dow Jones)--Crude oil futures sank more than $1 Wednesday after government data showed U.S. crude stockpiles swelled by nearly 10 million barrels last week.

Light, sweet crude for September delivery was recently down $1.29, or 1.1%, at $113.24 a barrel on the New York Mercantile Exchange. The September contract expires Wednesday. More active October Nymex crude declined $1.26 to $113.28 a barrel. September Nymex crude was trading at $116.86 before the data release.

October Brent crude on the ICE Futures exchange was down $1.09 to $112.16 a barrel.

The U.S. Department of Energy reported domestic crude stockpiles rose by 9.4 million barrels in the week ended Aug. 15, more than 11 times the gain expected by analysts. It was the largest rise in barrel terms since March 2001 and percentage terms since April 2003.

The gains came after crude imports to the Gulf Coast increased by about 1.8 million barrels a day, to 7.2 million barrels a day. Tim Evans, an energy analyst at Citi Futures Perspective, said Gulf imports bounced back after Tropical Storm Edouard had curbed imports in the prior week.

Today we saw inventory build by almost 10 million barrels, the largest build since March of 2001. At the same time, we hear news that Tropical Storm Eduard is waning. But there is another storm forming on in the Orient: China.

You can see the optimism in the futures. Although we had a huge build in oil inventory, the futures are flat. Has oil halted its slide? Even energy stocks found a bottom last couple days. China will soon go back to full throttle and Oil is going back to $150. Goldman Sachs said so.

Where I find flaw in this China-Olympics theory is that the media makes it out to be that there are only 2 consumers in the world of crude, U.S.A and China. Everyone says that this decrease in demand is thanks to the slow down in China to clean up the air before the Olympics. Did everyone forget that the rest of the world, including emerging markets like Russia, Brazil, and India, have NOT slowed down because of the Olympics? To add, China did not close down production country wide but only in Beijing and a few other small factory and port cities. Beijing is less than 2% (1.7% by my math in 2007) of China's GDP.

While the rest of the world (92% of energy consumption) continues to consume at its pre-Olympic pace, Oil has fallen $35. Yet, CNBC won't stop talking about the impending hurricane of demand that will come from China. I disagree.

As I have already said, most of China is still consuming at its pre-Olympic pace too.

Let's do a little guestimation: China accounts for 8% of world oil consumption (1/3 as much as the U.S). Let's say Beijing consumption has slowed 50% (it didn't) By limiting traffic, it is estimated that daily only 1/3 of the 3.3 million vehicles will stay off the road. Non-discretionary consumption should stay flat. So, 2% of 8% is 0.16% of world consumption, or approximately 138K barrels a day of consumptions. Going back to our 50% decrease in consumption number, Beijing purposely decreased its Beijing consumption by 69K barrels a day. There goes the ramping up thesis. 40 factories here and there don't significantly raise that number in the context of world supply.

My point is that China's actions have not significantly, or even marginally, cut demand. However, in the same time frame, Crude Oil has fallen from $148 to $113. To say that the slowdown in China is because of the Olympics is a canard. Furthermore, China has curtailed gasoline demand by raising prices 17% in late June and OPEC has increased supplies.

The Chinese tried very hard to piece together their country before the world arrived. It is arguable that the super spike we saw in oil was because China tried to complete in months what they should have built in years. Now, I will argue that progress (and consumption) will slow from here. Growth tends to slow post Olympics in host countries.

13F Weekened

13Fs are coming out soon and I'll spend the weekend compiling and condensing information.

Although 13Fs are lagging by about 6 weeks, they are at least very interesting and still informative.

A 13F is a compliance form filed with the SEC by investment managers with AUM of over $100 million.

Inflation Is In The Rear View Mirror

http://www.bloomberg.com/apps/news?pid=20601087&sid=aoOKMz5QYK9w&refer=home

U.S. Economy: Consumer Prices Rise More Than Forecast (Update1)

By Shobhana Chandra

Aug. 14 (Bloomberg) -- U.S. consumer prices rose at the fastest pace in 17 years in July, limiting the ability of the Federal Reserve to lower interest rates as economic growth slows.

The cost of living climbed 5.6 percent in the year ended in July, the Labor Department said today in Washington. It was up 0.8 percent from the previous month, twice as much as anticipated. So-called core prices, which exclude food and energy, also advanced more than projected.

The surge last month reflected energy prices that have since declined, signaling July may represent the peak in inflation. Still, increases went beyond food and fuel, including gains in clothing, airline fares and education, likely intensifying discussions among Fed policy makers about how quickly to shift toward raising rates.

To play the contrarian, the increase in prices across almost all categories shows capitulation.

I think the market is rallying because this could be the peak of inflation. As I have been writing, I think that commodities have peak in the intermediate future. Also, I think that this inflation numbers represent a level of price increases that if commodity prices stay at this level will lead to margin expansion. This explains the run-up in all companies that have been hurt by raw material costs.

It is foolish to recommend Proctor & Gamble (PG), Clorox (CLX), CL (Colgate), and the like after this recent run up. However, when we see a pullback, they should be worth it.