Tiger Consumer's Top 10 Positions Returned 18% This Year
Originally published by Guan Wang, Insider Monkey
Patrick McCormack’s Tiger Consumer Management is one of the many seeds from Tiger Management. Like its brethren, the fund is also housed at 101 Park Avenue in Midtown Manhattan. Founded in 2006, Tiger Consumer does not change its net exposure based on a market or economic view. Instead, it concentrates on two governing factors to its growth – liquidity and research capacity – according to McMormack’s letter to investors in 2010.
In late January, we found that McCormack’s top 10 positions at the end of September last year returned 19% since then. The large positions in McMormack’s portfolio continue such decent performance this year. Since the beginning of 2012, the top 10 positions at the end of December returned 18%, versus 11% for the S&P 500 index in the same period.
The top three positions in McCormack’s portfolio were Kraft (KFT), Dollar General (DG) and McKesson (MCK). Dollar General returned 13% and McKesson delivered an 18% return since the beginning of this year. Kraft is the third worst performing position in our list, gaining only 4%.
The best performing amongst the stocks in McMormack’s portfolio is Priceline.com Inc (PCLN). The stock is up 53% since the beginning of this year, beating the market by 42 percentage points. McCormack increased his Priceline stakes by 16% during the fourth quarter of 2011 – a rather well-timed bet by the looks of it. At the end of last year, Tiger Consumer reported to own $58 million worth of Priceline shares. Many other Tiger Cubs were also bullish about Priceline. Stephen Mandel, Chase Coleman, Andreas Halvorsen, and John Griffin were all among the top five most bullish hedge fund managers about Priceline. Coleman had $570 million invested in this position.
Express Scripts Inc (ESRX) is also generating a strong return this year. To date, the stock is up 32%, outperforming the market by over 20 percentage points. Express Scripts is a new position in McMormack’s portfolio. During the fourth quarter, Tiger Consumer initiated a brand new $53 million of Express Scripts. Stephen Mandel was in favor of Express Scripts as well. His Lone Pine Capital had over $600 million invested in this position at the end of 2011. Christopher James’ Partner Fund Management also had nearly $600 million invested in Express Scripts.
We like Express Scripts. In early April, the company acquired Medco Health Solutions for about $29.1 billion in cash and stock. Last year, Medco generated revenues of over $70 billion and earned about $1.5 billion. As a result, Express Scripts’ revenues are expected to increase significantly in 2012. The acquisition is also expected to generate at least $1 billion operating synergies and more than $4 billion cash flow.
In addition to acquisition, Express Scripts has also been buying back its common shares. The company repurchased about 46.4 million of its shares over the past year, boosting its EPS. Analysts expect the company to make $3.60 per share in 2012 and $4.46 per share in 2013, versus $2.98 per share for the trailing 12-month. The company’s forward P/E ratio is about 16, on par with the industry average of 15.10. But, considering its strong growth potential (analysts expect the company’s earnings to grow at an average of 16.4% in the next few years), we recommend investors buy this stock.
Starbucks Corp (SBUX) and Herbalife Ltd (HLF) also had strong performance this year. Starbucks is up 28% and Herbalife has returned 36% so far this year. Starbucks is very popular amongst the hedge funds we track. There were 42 hedge funds with Starbucks positions at the end of the fourth quarter 2011, including billionaire Steven Cohen’s SAC Capital, Ken Griffin’s Citadel Investment Group, and Jim Simons’ Renaissance Technologies. We agree with these hedge fund managers and we also recommend the stock as a buy (check out our previous article about Starbucks).
We like Herbalife too. We think the company will benefit from its expansion and the strong growth in Asia Pacific, South & Central America, and Mexico. We are bullish about the stock for the long term. Billionaire Jim Simons’ Renaissance also had a large position in Herbalife. The only two other funds with large positions are East Side Capitaland Ken Heebner’s Capital Growth Management (see Ken Heebner’s stock picks).
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