STEVE MANDEL is the founder of Lone Pine Capital, a a long/short ‘Tiger cub’, $14 billion hedge fund. Mandel was formerly a consumer analyst at Julian Robertson’s Tiger Management.
Fixed income is a game I wins very small and tails I lose bigs. It will take time but with Governments printing 24/7 this will happen. Money continues to pore into bond funds, and pension funds are piling into fixed income. There will be inflation as default is a much worse option.
We see value in equities. We like tech leaders in their fields, mobile communications, travel, search, outsource and others. Businesses with large moats which generate large returns on capital and some are giving their cash back to shareholders.
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We cannot figure out why investors are so scared of these companies. There are still large opportunities in companies that trade at 5-10% FCF yield compared to 2% treasury yield, we have 20% of our portfolio in it.
We also like companies with modest growth and buying back shares rapidly. We are looking for companies that are being conservative with their money, and it represents 20% of our portfolio.
We like Kohls with a senior management team with a large stake in the company. The expansion opportunities are more limited as it has grown, but it is intsenly focusing on existing stores and online precense. It decreased share count by 15% last year.
It trades at 10x earnings. The market is scared because management had problems last year due to high whool prices. Kohl’s was forced to take many write downs. The company is now being looked at as a buggy whip.
Retailing is all about management, even if JCP turns around Kohl’s should perform nicely. The company should earn $5.50 next year, even with a modest multiple, there is large room for expansion.