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The Top 5 Trades of Steve Mandel's Lone Pine

GuruFocus.com
·9 min read

- By Sydnee Gatewood

Lone Pine Capital, the hedge fund founded by Steve Mandel (Trades, Portfolio) in 1997, disclosed its portfolio for the third quarter of 2020 earlier this week.


The Greenwich, Connecticut-based firm picks stocks using a long-short strategy that focuses on bottom-up, fundamental analysis. Combining growth and value strategies, the firm, whose founder was a former "tiger cub" of Julian Robertson (Trades, Portfolio), is known to not hold positions for very long.

Keeping these considerations in mind, the firm entered 11 new positions during the three months ended Sept. 30, sold out of six stocks and added to or reduced a slew of other existing holdings. Among the most notable trades for the quarter were new stakes in DocuSign Inc. (NASDAQ:DOCU), Square Inc. (NYSE:SQ) and Match Group Inc. (NASDAQ:MTCH) as well as a reduction in the Booking Holdings Inc. (NASDAQ:BKNG) position and the divestment of Salesforce.com Inc. (NYSE:CRM).

DocuSign

Lone Pine invested in 4.13 million shares of DocuSign, allocating 3.84% of the equity portfolio to the stake. The stock traded for an average price of $207.45 per share during the quarter.

The San Francisco-based company, which operates an eSignature cloud-based software suite, has a $40.93 billion market cap; its shares were trading around $222.35 on Friday with a price-book ratio of 81.54 and a price-sales ratio of 34.58.

The price chart shows the stock is trading above both its median price-book ratio and its median price-sales value, suggesting it is overpriced.

The Top 5 Trades of Steve Mandel's Lone Pine
The Top 5 Trades of Steve Mandel's Lone Pine

GuruFocus rated DocuSign's financial strength 5 out of 10. While the company has a low cash-to-debt ratio, the robust Altman Z-Score of 15.24 indicates it is in good standing despite recording a decline in revenue per share over the past three years.

The company's profitability fared even worse, scoring a 1 out of 10 rating on the back of negative margins and returns that underperform a majority of competitors. DocuSign, however, is supported by a moderate Piotroski F-Score of 5, which implies operating conditions are stable.

With its purchase of a 2.23% stake, Mandel's firm is now DocuSign's largest guru shareholder. Other top guru investors are Philippe Laffont (Trades, Portfolio), Jim Simons (Trades, Portfolio)' Renaissance Technologies, Chase Coleman (Trades, Portfolio), Pioneer Investments (Trades, Portfolio), Louis Moore Bacon (Trades, Portfolio), Steven Cohen (Trades, Portfolio), David Swensen (Trades, Portfolio), Caxton Associates (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio) and First Pacific Advisors (Trades, Portfolio).

Square

Having previously exited a position in Square in the second quarter, the firm entered a new 5.36 million-share stake, dedicating 3.76% of the equity portfolio to the stake. Shares traded for an average price of $140.85 each during the quarter.

Headquartered in San Francisco, the company, which provides payment processing services to merchants, has a market cap of $89.22 billion; its shares were trading around $198.39 on Friday with a price-earnings ratio of 314.04, a price-book ratio of 46.8 and a price-sales ratio of 12.39.

According to the Peter Lynch chart, the stock is overvalued.

The Top 5 Trades of Steve Mandel's Lone Pine
The Top 5 Trades of Steve Mandel's Lone Pine

Square's financial strength was rated 5 out of 10 by GuruFocus. In addition to an adequate cash-to-debt ratio of 1.77, the high Altman Z-Score of 9.95 indicates the company is in good standing even though assets are building up at a faster rate than revenue is growing.

The company's profitability scored a 3 out of 10 rating. While the operating margin is negative and underperforming compared to over half of other software companies, the strong returns are outperforming a majority of industry peers. Square also has a moderate Piotroski F-Score of 6.

Of the gurus invested in Square, Frank Sands (Trades, Portfolio) has the largest position. Laffont, Ken Fisher (Trades, Portfolio), Daniel Loeb (Trades, Portfolio), David Tepper (Trades, Portfolio), Jerome Dodson (Trades, Portfolio), Pioneer, Cohen, Paul Tudor Jones (Trades, Portfolio), Ron Baron (Trades, Portfolio), Mario Gabelli (Trades, Portfolio), Greenblatt, Robertson and Murray Stahl (Trades, Portfolio) also own the stock.

Match Group

After previously selling out of Match Group in the second quarter, Lone Pine picked up a new 7.8 million-share stake. The stock traded for an average per-share price of $105.79 during the quarter.

The Dallas-based company, which operates a number of online dating sites like Match.com, Tinder, Hinge and PlentyOfFish, has a $35.63 billion market cap; its shares were trading around $134.09 on Friday with a price-sales ratio of 4.97.

Based off the Peter Lynch chart, the stock appears to be overvalued. The GuruFocus valuation rank of 1 out of 10 supports this assessment since the share price and price-sales ratio are both approaching 10-year highs.

The Top 5 Trades of Steve Mandel's Lone Pine
The Top 5 Trades of Steve Mandel's Lone Pine

GuruFocus rated Match Group's financial strength 4 out of 10. As a result of issuing approximately $2.5 billion in new long-term debt over the past five years, the company has weak interest coverage. The Altman Z-Score of 3.3 also indicates the company is in good standing even though assets are building up at a faster rate than revenue is growing. In addition, the company is creating good value for shareholders since the return on invested capital eclipses the weighted average cost of capital.

The company's profitability scored a 7 out of 10 rating, driven by an expanding operating margin, returns that outperform over half of its competitors and a moderate Piotroski F-Score of 4. Match Group's profitability rank of one out of five stars, however, is on watch. GuruFocus says companies with this rank return an average of 1.1% annually over a 10-year period.

Sands is the company's largest guru shareholder with a 3.85% stake. Other top guru investors are Spiros Segalas (Trades, Portfolio), Pioneer, Bacon, Simons' firm, Gabelli, Jones, Greenblatt, Stahl, Tom Gayner (Trades, Portfolio), Caxton Associates (Trades, Portfolio) and First Pacific Advisors (Trades, Portfolio).

Booking Holdings

With an impact of -4.33% on the equity portfolio, the firm curbed its position in Booking Holdings by 90.12%, selling 537,213 shares. During the quarter, the stock traded for an average price of $1,757.32 per share.

Lone Pine now holds 58,920 shares, representing 0.43% of the equity portfolio. GuruFocus estimates the firm has gained 33.91% on the investment since establishing it in the second quarter.

The Top 5 Trades of Steve Mandel's Lone Pine
The Top 5 Trades of Steve Mandel's Lone Pine

The online travel agency, which is headquartered in Norwalk, Connecticut, has a market cap of $82.31 billion; its shares were trading around $2,011.24 on Friday with a price-earnings ratio of 60.53, a price-book ratio of 16.81 and a price-sales ratio of 9.38.

The Peter Lynch chart suggests the stock is overvalued. The GuruFocus valuation rank of 1 out of 10 also supports this assessment since the share price, price-earnings and price-sales ratios are all nearing 10-year highs.

The Top 5 Trades of Steve Mandel's Lone Pine
The Top 5 Trades of Steve Mandel's Lone Pine

Booking Holdings' profitability was rated 5 out of 10 by GuruFocus. Although the company has issued approximately $2.4 billion in new long-term debt, it is at a manageable level due to sufficient interest coverage. The high Altman Z-Score of 5.53 also indicates the company is in good standing despite having a Sloan ratio that is indicative of poor earnings quality. The ROIC also surpasses the WACC, suggesting good value creation.

The company's profitability fared even better, scoring a 9 out of 10 rating on the back of strong margins and returns that outperform a majority of industry peers. Booking also has a moderate Piotroski F-Score of 5, but the 3.5-star predictability rank is on watch as a result of the company recording losses in operating income over the past three years and a decline in revenue per share over the past 12 months. According to GuruFocus, companies with this rank return an average of 9.3% annually.

Of the gurus invested in Booking Holdings, Dodge & Cox has the largest stake with 3.03% of outstanding shares. Other top guru investors include Andreas Halvorsen (Trades, Portfolio), Pioneer, First Eagle, Bill Nygren (Trades, Portfolio), Diamond Hill Capital (Trades, Portfolio), Yacktman Asset Management (Trades, Portfolio), First Pacific and Hotchkis & Wiley.

Salesforce

After establishing a position in Salesforce in the second quarter, the firm turned around and sold all 3.04 million shares. The transaction had an impact of -2.88% on the equity portfolio. During the quarter, shares traded for an average price of $219.05 each.

GuruFocus data shows the firm gained 22.98% on the investment.

The Top 5 Trades of Steve Mandel's Lone Pine
The Top 5 Trades of Steve Mandel's Lone Pine

The San Francisco-based software company, which provides customer relationship management services, has a $239.22 billion market cap; its shares were trading around $262.89 on Friday with a price-earnings ratio of 102.69, a price-book ratio of 6.21 and a price-sales ratio of 12.31.

According to the Peter Lynch chart, the stock is overvalued. The GuruFocus valuation rank of 2 out of 10 also leans toward overvaluation since the share price and price-sales ratios are close to 10-year highs.

The Top 5 Trades of Steve Mandel's Lone Pine
The Top 5 Trades of Steve Mandel's Lone Pine

GuruFocus rated Salesforce's financial strength 7 out of 10. Despite having weak interest coverage and assets are building up at a faster rate than revenue is growing, the company has a high Altman Z-Score of 8.01. The WACC is higher than the ROIC, however, suggesting value is being destroyed.

The company's profitability did not fare as well with a 5 out of 10 rating. While the operating margin is underperforming versus other players in the software industry, Salesforce's margins outperform over half of its competitors. It is also supported by a high Pitroski F-Score of 7, which indicates business conditions are healthy, and a one-star predictability rank.

With a 1.31% stake, Fisher is the company's largest guru shareholder. Other top guru investors include Segalas, Pioneer, Coleman, First Eagle, Loeb, Al Gore (Trades, Portfolio), Tepper and Jeremy Grantham (Trades, Portfolio).

Additional trades and portfolio composition

During the quarter, Lone Pine also established new positions in Atlassian Corp. PLC (NASDAQ:TEAM), StoneCo Ltd. (NASDAQ:STNE), Nuance Communications Inc. (NASDAQ:NUAN), MercadoLibre Inc. (NASDAQ:MELI), Bill.com Holdings Inc. (NYSE:BILL), Snowflake Inc. (SNOW), Insulet Corp. (PODD) and KE Holdings Inc. (BEKE).

Nearly half of the firm's $23.21 billion equity portfolio, which is composed of 32 stocks, is invested in the technology sector, followed by smaller holdings in the communication services, financial services and health care spaces.

The Top 5 Trades of Steve Mandel's Lone Pine
The Top 5 Trades of Steve Mandel's Lone Pine

Disclosure: No positions.

Read more here:

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  • David Einhorn's Top 5 Trades of the 3rd Quarter

  • Chase Coleman's Top 5 Buys



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This article first appeared on GuruFocus.