Filed under: Investing
At the beginning of 2013, Lone Pine Capital was the seventh-largest hedge fund in America. Led by portfolio manager Stephen Mandel, the fund recently had a portfolio value of more than $22 billion. According to Insider Monkey, Mandel has also been able to outperform the S&P 500 by 20 percentage points per year over the last 11 years.
With performance like that, it's worth checking out what Mandel is buying and selling. Though his firm made more than 60 different buy and sell trades during the third quarter, I want to focus on two big buys and one notable sell that Mandel made.
It's not too hard to see why Baidu was such a juicy target for Mandel. Before July 1, Baidu -- the largest search engine in China -- was trading for just 25 times earnings. That might sound pricey, but over the past five years, Baidu has grown revenue by 72% and earnings by 85% -- per year!
The dual concerns of increased competition from Qihoo 360 and slowing profits during the company's transition to mobile advertising had investors worried. But Baidu had a much larger war chest of cash to spend on expansion than Qihoo, and it flexed those muscles in mid-July when it acquired 91Wireless -- China's third-largest mobile-apps player.
Couple that with earnings releases that show solid revenue gains in mobile, and the stock is up 72% since then. Mandel's stake in Baidu was worth nearly $820 million by the end of September.
21st Century Fox
Having changed its name from News Corporation, Fox has TV, cable, and broadcast entities spread throughout the world, including FOX, Fox Sports, and Fox News. It should be noted that although the report suggests that Mandel initiated a position in Fox worth approximately $627 million, much of the "new" position came simply from holding on to shares whose ticker symbol changed.
What's interesting about the move is that it appears Mandel sold off any shares of the new News Corporation that Lone Pine received after getting spun off from the newly renamed Fox. By doing so, Mandel showed a lack of confidence in the newspaper and publishing entities that were placed into the spun-off News Corp. Unlike those dying industries, Fox contains rights to a host of popular characters, as well as a popular platform for sports viewing that is second only to Disney's ESPN.
Meanwhile, Mandel had no interest in holding on to shares of Intuitive Surgical, maker of the daVinci Robotic Surgical System. Though it's impossible to tell when the sale was made during the third quarter, Lone Pine's exit was likely in the ballpark of a $430 million sale.
Trouble started brewing for Intuitive investors earlier in the year when an article appearing in the Journal of the American Medical Association called into question the prudence of using daVinci for a large portion of hysterectomies. The procedure is the most common for which the daVinci is used.
But the straw that broke the camel's back was likely the surprisingly slow sales of daVinci units in the United States. After years of growth, hospital spending on new machines was much lower than expected. Many believe that was due to cash flow uncertainty in the face of new regulations from the Affordable Care Act -- otherwise known as Obamacare.
With hospitals unwilling to pay for new machines until the fiscal picture clears up, Mandel decided not to stay around to see what happens, and focused Lone Pine's capital in other areas.
Now you know what Lone Pine likes. See what we think
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The article What This Market-Bashing Hedge Fund Is Buying and Selling originally appeared on Fool.com.Fool contributor Brian Stoffel owns shares of Baidu and Intuitive Surgical. The Motley Fool recommends Baidu, Intuitive Surgical, and Walt Disney. The Motley Fool owns shares of Baidu, Intuitive Surgical, and Walt Disney. 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.
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