Updated on June 30th, 2021 by Nikolaos Sismanis
Lone Pine Capital is an American-based hedge fund headquartered in Greenwich, Connecticut. It was established in 1997 by its president and managing director Stephen Mandel. Lone Pine Capital is well-known for its exceptional returns thanks to the expertise of Stephen Mandel. The fund has around $27.5 billion worth of assets under management (AUM), the majority of which is invested in publicly-traded companies.
Investors following the company’s 13F filings over the last 3 years (from mid-May 2018 through mid-May 2021) would have generated annualized total returns of 28.76%. For comparison, the S&P 500 ETF (SPY) generated annualized total returns of 18.60% over the same time period.
You can download an Excel spreadsheet with metrics that matter of Lone Pine Capital’s current 13F equity holdings below:
Note: 13F filing performance is different than fund performance. See how we calculate 13F filing performance here.
This article will discuss Lone Pine Capital’s investment strategy and portfolio holdings.
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Lone Pine Capital’s Holdings
Lone Pine Capital has achieved impressive annualized returns over the past few years, outperforming the S&P 500 by a wide margin. The outstanding performance has resulted from the management’s competency in identifying and investing in companies in the high-growth tech sector.
The portfolio of the fund almost exclusively includes technology stocks, and thus it has some remarkable characteristics. Only 5 out of the 32 stocks included in the portfolio pay a dividend while the average forward price-to-earnings ratio is extremely high, standing over 100.0 (excluding the non-meaningful earnings multiple of some stocks).
During the previous quarter, Lone Pine Capital made the following noteworthy changes to its portfolio.
- ICICI Bank Ltd. ADR (IBN)
- Workday Inc (WDAY)
- Insulet Corp (PODD)
- Qualtrics Intl Inc (XM)
- Autodesk, Inc. (ADSK)
- DocuSign Inc (DOCU)
- Amicus Therapeutics Inc (FOLD)
- Howmet Aerospace Inc. (HWM)
- Humana, Inc. (HUM)
- XP Inc. (XP)
The top 5 holdings of the stock portfolio comprise 37% of its total value. It is thus evident that Lone Pine Capital has high conviction in its major holdings.
Source: 13F filings, Author
Lone Pine Capital’s top 10 holdings comprise 60.7% of its total portfolio and consist of the following equities:
Shopify is Lone Pine Capital’s largest holding, comprising 8.0% of the total value of its portfolio. The stake was initiated in 2019, at prices between $195 and $328, with the stock having delivered multi-bagger returns since, now standing at $1473.
Shopify provides a cloud-based commerce platform, which enables merchants to adapt to the e-commerce era. The company obviously benefits from a secular trend, which has decades ahead to run, namely the shift of consumers from brick-and-mortar purchases to online purchases. The pandemic has caused this long-term trend to accelerate at an enormous pace.
As a result, Shopify saw its revenues grow by 85.6% YoY in 2020. Due to the company’s recurring revenues, accelerated growth, and positive catalysts surrounding e-commerce, the stock is currently trading a forward price/sales of 39, one of the highest valuation multiples in the industry.
Thanks to the immense growth potential of its business, Shopify is likely to keep growing its revenues and its earnings at a breathtaking pace for several more years. Nonetheless, the market has already priced a great portion of future growth in the stock price. To provide a perspective, the stock is currently trading at 61 times its expected earnings in 2025. As a result, the stock will have material downside risk whenever it faces an unforeseen headwind.
Lone Pine trimmed its position by 4% during the quarter.
Microsoft’s diversified portfolio of tech products and services has ruled the tech sector’s digital infrastructure. The company’s CEO Satya Nadella has transformed the company into a cloud powerhouse. As a result, Microsoft has managed to accelerate its growth and post all-time high earnings in the last two years.
Microsoft is now a mega-cap stock with a market capitalization of $2.0 trillion.
Supported by the company’s strong profitability, management has been consistently raising buybacks over the past decade to further reward its shareholders. The amount allocated to stock repurchases has reached new all-time highs over the past four quarters, at nearly $26B.
Revenue growth remains in the double-digits, so it’s likely to see capital returns accelerating moving forward. The company is also growing the dividend at a double-digit rate, though at the current yield, which stands below 1%, investors should expect the majority of their future returns in the form of capital gains.
Despite that, Microsoft’s cash position has been growing continually, with the company currently sitting on top of a massive $125 billion cash pile.
Further, while many companies have chosen to utilize the current ultra-low interest rates to raise cheap debt and buy back stock, Microsoft’s approach has been prudent and thoughtful. Not only are current earnings extensively covering buybacks (59% buyback “payout ratio”), but long-term debt has been substantially reduced from $76 billion in mid-2017 to around $55 billion as of its last report.
It is impressive that a stock with a market capitalization of $2 trillion, still has such a strong growth momentum. Shares are also trading a P/E ratio of around 32, which is quite reasonable for a dominating tech behemoth.
Lone Pine likely finds Microsoft still continue attractive, as the position was hiked by 23% quarter-over-quarter.
L Brands, Inc. (LB):
The specialty retailer behind Victoria’s Secret had an awful last few years, with retail sales suffering massively. COVID-19 adding extra pressure to retail locations, and the company’s shares collapsed to around $8 during the March of 2020, from around $97 four years ago. Melvin doubled its position during the stock’s nosedive, making a nice profit on the way back up.
The fund trimmed its position by around 59% during the last quarter. With shares surging even further over the past few months amid the company’s better than expected recovery, the fund likely sold off a large chunk of its position for diversification reasons.
The company has shown fantastic recovery signs, with its most recent Q1 quarter showing sales growth of 83% to $3.02 billion. Comparable sales also increased by +7% vs. -5% in the comparable period last year. Consequently, L Brands quickly returned to profitability and even reinstated its previously cut quarterly dividend. At around 11.6 times its forward net income, the stock may even still be a discount despite its rally.
L Brands is Lone Pine’s third-largest holding, with the position remaining constant during the last quarter. The fund holds around 9.4% of the company’s outstanding shares.
Facebook Inc. (FB):
Facebook is a tremendous cash cow, but with a problem. On the one hand, with strong financials, one of Wall St.’s healthiest balance sheets, and the best platform for advertisers to utilize, Facebook has been dominating the social media industry. The company has reported an all-time high bottom line of $33.7 billion over the past four quarters, amid great user growth, which remained in the double-digits once again in its latest report.
For these reasons, it would not be a complete surprise if Facebook paid a dividend at some point in the future.
On the other hand, the stock has failed to attract an appropriate valuation multiple, as the steep scrutiny it has faced over the past few years have made Facebook, a non-investor-friendly company. Facebook missteps have been quite detrimental in creating this narrative, especially now that investors are increasingly more eager for ESG-friendly investments. The stock is only trading at around 25 times its underlying earnings, despite its rapid growth.
With its ARPU (average revenue per user) still very strong, Facebook’s financials are more than likely to continue expanding rapidly. Facebook’s investment case today does not only include the potential for a significant upside but also comes with a great margin of safety.
If such a valuation expansion never appears, and Facebook continues to trade at a forward P/E of around 25, at an EPS growth rate of 20%-30% in the medium term (which the current user and APRU growth trajectory could easily sustain), investors should achieve equally satisfactory returns with a constant valuation multiple.
The stock is Lone Pine’s 4th largest position, climbing amongst the fund’s largest holdings due to the fund increasing its position by 58% during the quarter.
Being one of the four companies in the trillion-dollar-market-cap club, Jeff Bezos’s company is currently the third-largest in the world, worth around $1.76T. As the company’s continuous advancements keep on taking over the world both in terms of its commerce and digital infrastructure, Amazon has become an unstoppable force, causing its stock to maintain substantial investor demand.
However, investors should not expect a dividend from Amazon anytime soon.
Amazon delivered another spectacular quarter recently, with Q1 AWS net sales up 32% YoY to $13.5B, topping the 22.5% growth rate consensus estimate. Revenue grew to $108.52 billion, a 43.7% increase YoY, contributing to all-time high LTM (Last Twelve Month) sales of $419 billion.
Due to scaling its operations, the company’s net income margins have constantly been evolving, reaching 6.42% during this period, turning Amazon into an increasingly profitable growth monster. The stock is currently trading at a forward P/E of 58.5, but considering its EPS growth, it could be a reasonable valuation multiple.
The stock accounts for 7.2% of Lone Pine’s portfolio.
UnitedHealth Group (UNH):
Lone Pine initiated its position in UnitedHealth back in 2017, featuring an average purchase price of around $234. United Health benefits from the growing consumer-oriented health benefit plan market. It has grown its net income every single year in the last decade and thus it has more than quadrupled its earnings per share over this period. Thanks to the favorable trends in its business and expanding margins due to economies of scale, it is likely to keep growing its bottom line at a double-digit rate in the upcoming years.
We thus view its forward price-to-earnings ratio of 21.7 as relatively attractive and expect the stock to continue to highly reward its shareholders. Still, due to its tiny yield, the stock may not greatly appeal to income-oriented investors.
Lone Pine trimmed its position by a slight 1% during the quarter. UnitedHealth is now Lone Pine’s 6th largest holding.
Few people had taken Snap seriously back in its IPO days, leading to shares declining as low as $5 in late 2018. Over the past couple of years, however, the company has continued its steady and rapid growth while creatively monetizing its audience, which led to rapidly growing revenues.
That said, the company remains quite unprofitable. It has never posted a positive net income so far. However, at this rate, Snap could generate its first profits by 2022, if not the end of 2021.
The position is relatively new, initiated by Lone Pine during Q4-2020. It is currently the fund’s 7th largest position.
Adobe Inc. (ADBE) :
Adobe is an exceptional business, featuring a high margin recurring revenue model in a business which the company has essentially monopolized. Revenue growth has been exceptional and sustained at a robust rate, with the company breaking new records by the quarter.
Shares may appear price trading at a forward P/E of around 45, however, considering that Adobe is accelerating its stock repurchases at the current multiple, the stock could be fairly priced based on its future prospects.
Lone Pine increased its position by 29% during the quarter. It is now the fund’s 8th largest holding.
MercadoLibre, Inc. (MELI):
MercadoLibre is often called the “Amazon of Latin America,” employing a similar business model. Similar to all the other companies in the e-commerce industry, MELI’s revenues saw a boost from the staying-at-home economy, currently featuring a 3-year revenue growth CAGR of 54.7%. The company is also flirting with profitability, which should eventually grow as well as soon as MELI scales its margins a bit further.
Lone Pine increased its position by 19% during the quarter. Investors should be wary of the currency risk involved, as MELI’s original sales are not in U.S. dollars, but only converted afterward.
Coupa Software (COUP)
Coupa Software is a relatively new stock in Lone Pine’s portfolio that has ascended towards the company’s top holdings. The company has been growing its revenues by the quarter, currently showcasing a $664 million run-rate based on its latest $166 million in sales in Q1. While the company remains highly unprofitable, investors appreciate its massive growth, and shares are near all-time highs. The stock is trading at nearly 26 times its forward sales, however, making Coupa an expensive stock on a valuation basis.
Lone Pine slightly trimmed its position during the quarter, by around 1%. It is the fund’s 10th largest holding.
Lone Pine Capital invests only in companies with huge growth potential and a wide moat in their businesses. As a result, the tremendous earnings growth of these stocks has more than offset their initial rich valuation. On the other hand, investors looking to tap into Lone Pine Capital’s holdings should be wary of the fund’s lack of diversification and the tech sector’s sky-high valuations.