Lone Pine Capital’s 26 Stock Portfolio List | Top 10 Holdings Analyzed

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Lone Pine Capital’s 26 Stock Portfolio List | Top 10 Holdings Analyzed


Updated on June 21st, 2022 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 $16.8 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 2019 through mid-May 2022) would have generated annualized total returns of 4.4%. For comparison, the S&P 500 ETF (SPY) generated annualized total returns of 16.1% 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.

Table Of Contents

Lone Pine Capital’s Holdings

Lone Pine Capital has achieved rather underwhelming annualized returns over the past few years, underperforming the S&P 500 by a notable margin. This is explained by the fund’s significant exposure to the tech sector and high-growth equities whose stock prices have plummeted year to date.

Because the fund’s portfolio almost exclusively includes high-growth and technology stocks, it also has some interesting characteristics. Only nine out of the 26 stocks included in the portfolio pay a dividend, while the average forward price-to-earnings ratio is extremely high, standing nearly 70 (excluding the non-meaningful earnings multiple of some stocks).

During the previous quarter, Lone Pine Capital made the following noteworthy changes to its portfolio.

Noteworthy New Buys:

Noteworthy New Sells:

The top 5 holdings of the stock portfolio comprise 41% 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 68.4% of its total portfolio and consist of the following equities:

Microsoft (MSFT):

Found amongst the top holdings of the majority of the funds we have covered, Microsoft is Lone Pine’s largest holding, occupying 10.5% of its portfolio. The fund increased its position by 6% during the quarter.

Microsoft is a mega-cap stock with a market capitalization of $1.85 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 $31.1 billion.

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 $104.6 billion cash pile.

Further, while many companies had chosen to utilize the ultra-low interest rate environment over the past several years to raise cheap debt and buy back stock, Microsoft’s remained prudent and thoughtful. Not only are current earnings extensively covering buybacks (~60% buyback “payout ratio”), but long-term debt has been substantially reduced from $76 billion in mid-2017 to around $48.1 billion as of its last report.

It is impressive that a stock with a market capitalization of $1.85 trillion still has such a strong growth momentum. Shares are also trading at a forward P/E ratio of around 23.3, which could signal an opportunity against the company’s strong growth velocity, especially from Azure. Due to Microsoft’s robust growth and financials, it’s likely that investors won’t let shares trade at much of a discount going forward, despite the underlying shaky macroeconomic environment.

Bath & Body Works, Inc. (BBWI):

Contrary to its tech-heavy portfolio, Lone Pine’s second largest position is that of Bath & Body Works. The company is a specialty retailer of home fragrances, body care, soaps, sanitizer, and similar products, through 1,755 company-operated stores and 338 international partner-operated stores. Sales took a hit in the midst of the pandemic due to global lockdowns and restrictions in the retail space. However, results appear to be moving towards a rebound, while the company quickly returned to making profits. Still, being a retailer, its margins remain rather contained.

Bath & Body Works is likely Lone’s Pine vehicle to play the recovery in the retail market. Still, with macroeconomic headwinds on the horizon, investors should be wary of the risk related to consumers’ purchasing power potentially declining moving forward. Bath & Body Works makes up around 8.6% of the fund’s portfolio, despite Lone Pine trimming its position by around 8% during this past quarter.

Amazon.com Inc. (AMZN)

Amazon’s latest results were somewhat weak, while management’s weak guidance for Q2 combined with a very uncertain macroeconomic environment kept inflicting dread on investors. Net sales rose 7% to $116.4 billion in Q1. However, operating margins fell from 8.2% to 3.2%. Hence, the company’s operating income for the three-month period plunged 58.4% to $3.7 billion.

What’s mostly stressing about Amazon’s operating income is that it’s presently exclusively subsidized by AWS. The division’s revenues increased 37% year-over-year or 34% yearly over the past two years, in Q1, as AWS was proven crucial in helping companies to endure the pandemic and push more of their workloads up to the cloud.

Driven by economies of scale, the segment’s operating margin grew from 30.8% to 35.3.% year-over-year, resulting in a segment operating income of $6.5 billion. Nevertheless, Amazon’s core business, excluding AWS, is currently recording losses. In fact, both Amazon’s North American and International branches posted losses, recording operating margins of -2.3% and -4.5%, respectively. Sadly, the ongoing headwinds impacting Amazon’s core operations do not appear to be a transient phenomenon.

The stock has had a place in Lone Pine’s portfolio since Q4-2017. The fund trimmed its position by 27% during the quarter, yet Amazon remains its third-largest holding.

Workday, Inc. (WDAY)

Workday is an industry leader in providing businesses with cloud applications for finance and human resources, aiming to help customers adjust and flourish in a dynamic world.

The company serves more than 8,000 businesses with SaaS solutions to resolve some of today’s most complicated business hurdles, including strengthening and empowering their workforce and handling their finances and spending in order to plan for the unexpected.

The company has managed to grow its revenues consistently, while the bottom line has been approaching positive numbers following Workday’s scaling phase.

Lone Pine initiated its position in Workday in Q1-2021. The fund trimmed its equity stake by 11% as of its latest quarterly filing. The stock now accounts for 7.2% of Lone Pine’s portfolio and is its fourth-largest holding.

ServiceNow, Inc. (NOW):

ServiceNow ascended to Lone Pine’s fifth-largest position spot despite the fund trimming its position by 1% during the quarter. The company provides enterprise cloud computing solutions that empower businesses globally. The “Now” platform allows workflow automation, artificial intelligence, machine learning, and performance analytics, among various other development tools.

ServiceNow’s bottom line has remained borderline positive, as the company reinvested the majority of its operating cash flows back into growing the business. Investors should not expect substantial profits, and hence any capital returns such as dividends, anytime soon.

That said, the company’s GAAP profitability is being greatly impacted by high stock-based compensation levels. If we look at ServiceNow’s free cash flow generation instead, we can see substantial growth. Still, investors need to be wary of the fact the stock still trades at around 45.6 times its free cash flow, even following its recent correction.

Lone Pine has held ServiceNow shares since early 2017 and has increased its position more times than trimming it since, suggesting the fund’s management has a high conviction in the company’s long-term prospects. ServiceNow accounts for 6.9% of Lone Pine’s total portfolio.

MasterCard, Inc (MA)

MasterCard is a world leader in electronic payments. The company partners with 25,000 financial institutions around the world to provide an electronic payment network. MasterCard has nearly 3 billion credit and debit cards in use. The company is Lone Pine’s sixth-largest holding, making up around 6.4% of the fund’s portfolio.

MasterCard’s latest results came in quite strong. Revenues rose 23.8% to $5.2 billion, which was $300 million better than expected. Adjusted earnings-per-share came in at $2.76 compared very favorably to $1.74 in the prior year and was $0.60 ahead of estimates. Gross dollar volumes improved 17% worldwide to $1.9 trillion, with the U.S. growing 14% while the rest of the world increased 19%. Cross-border volumes surged 53%, while switched transactions also rose by 22%.

Quarter-to-date, MasterCard repurchased an additional 1.7 million shares at an average price of $352. The company has $8.9 billion remaining on its share repurchase authorization. Analysts expect that the company will earn $10.51 per share in 2022.

MasterCard is an entirely new position in Lone Pine’s portfolio, initiated by the fund in Q4-2021. The position was trimmed by 49% during the previous quarter.

Meta Platforms, Inc. (META):

Meta Platforms is an entirely new position in Lone Pine’s portfolio. The fund bought 3,662,065 during the quarter, lifting the name to its seventh-largest position.

Meta is a tremendous cash cow, but with a problem. With strong financials, a healthy balance sheet, and the best social media platform for advertisers, Meta has been dominating the social media industry. The company reported an all-time high bottom line of $19.37 billion in FY2021, amid great user growth, notwithstanding now decelerating to the single digits.

For these reasons, it would not be a complete surprise if Meta paid a dividend at some point in the future.

On the other hand, the stock has failed to attract a higher multiple, as the steep scrutiny it has faced over the past few years have had an impact on the valuation. Speculation over the company’s huge spending toward “The Metaverse” has also spurred uncertainty. The stock is only trading at around 16.0 times its underlying earnings, despite its consistent profitability and future growth prospects.

With its ARPU (average revenue per user) still very strong, Meta’s financials are more than likely to continue expanding rapidly. Meta’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 Meta continues to trade at a forward P/E of around 16.0, at an EPS growth rate of 10%-15% in the medium term (which the current user and APRU growth trajectory and ongoing stock repurchases could reasonably sustain), investors should achieve equally satisfactory returns with a constant valuation multiple.

Meta Platforms stock currently accounts for 5.9% of the fund’s total holdings.

Taiwan Semiconductor Manufacturing Company Limited (TSM):

Taiwan Semiconductor Manufacturing is the world’s largest dedicated foundry for semiconductor components. The company is headquartered in Hsinchu, Taiwan. American investors can initiate an ownership stake in Taiwan Semiconductor through American Depository Receipts on the New York Stock Exchange, where they trade under the ticker TSM with a market capitalization of US$440.7 billion.

As the leader in the semiconductor manufacturing industry, it is unsurprising that Taiwan Semiconductor has generated tremendous growth over the last decade. Indeed, the company has compounded its adjusted earnings-per-share by 16.0% per year over this time period. The company exhibits a remarkably strong balance sheet as well. Since very few companies are debt-free, the exceptional balance sheet of the semiconductor manufacturer is a testament to the strength of its business model, which does not require debt to fuel growth and generates ample free cash flows.

Taiwan Semiconductor is an entirely new holding for Lone Pine, initiated in Q1-2022. With the fund immediately purchasing 7,981,414 shares, Taiwan Semiconductor is now Lone Pine’s eighth-largest holding.

Visa (V)

Visa is the world’s leader in digital payments, with activity in more than 200 countries. The stock went public in 2008, and its IPO has proven to be one of the most successful in U.S. history. The company’s global processing network provides secure and reliable payments around the world and is capable of handling more than 65,000 transactions a second. In the fiscal year 2021, the company generated nearly $12.3 billion in profit.

On April 26th, 2022, Visa reported Q2 fiscal year 2022 results for the period ending March 31st, 2022. (Visa’s fiscal year ends September 30th.) For the quarter, Visa generated revenue of $7.2 billion, adjusted net income of $3.8 billion, and adjusted earnings-per-share of $1.79, marking increases of 25%, 27%, and 30%, respectively.

These results were driven by a 17% gain in Payments Volume, a 47% gain in Cross-Border Volume, and a 19% gain in Processed Transactions. As a result of economic sanctions imposed on Russia by the U.S., European Union, United Kingdom, and others, Visa announced in March 2022 that they were suspending operations in Russia and since they are no longer generating revenue from activities related to Russia. Russia accounted for roughly 4% of total net revenues for the first half of fiscal 2022 and the full year of fiscal 2021.

During the quarter, Visa returned $3.7 billion to shareholders via dividends and share repurchases.

Visa is Lone Pine’s ninth-largest position. While the fund trimmed its position by 28% during the latest quarter, it still accounts for 5.5% of its total holdings.

RH (RH):

RH operates as a retailer in the home furnishings industry. Through 67 RH Galleries and 38 RH outlet stores, the company offers products in a number of categories, such as furniture, lighting, textiles, bath-ware, décor, and outdoor and garden, amongst others. Shares of RH have plummeted by around 67% from the stock’s 52-week highs. This is most likely due to investors fearing that consumers’ purchasing power will soften as a result of the various macroeconomic headwinds the market is experiencing. While such concerns may materialize moving forward, the company continues to produce robust results to date.

Following the stock’s steep decline, shares are now trading with a forward P/E of 10.9 attached. Lone Pine doubled down during the sell-off, increasing its equity stake in RH by 6% in Q1. RH is now Lone Pine’s tenth-largest holding, accounting for 3.8% of its total portfolio.

Final Thoughts

Lone Pine Capital invests only in companies with huge growth potential and a wide moat in their businesses. However, due to most of these equities underperforming lately following the market’s general sell-off, the fund’s returns appear to be mostly underwhelming.

With the ongoing market environment being quite volatile and uncertain, 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. This is due to macroeconomic headwinds that could keep pressuring these equities.

 

Additional Resources

See the articles below for analysis on other major investment firms/asset managers:

If you are interested in finding more high-quality dividend growth stocks suitable for long-term investment, the following Sure Dividend databases will be useful:

The major domestic stock market indices are another solid resource for finding investment ideas. Sure Dividend compiles the following stock market databases and updates them monthly:

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