Steve Mandel’s Firm Ups Stake in Buffett’s StoneCo

Lone Pine Capital, the hedge fund founded by

Steve Mandel (Trades, Portfolio) in 1997, revealed earlier this week it upped its stake in StoneCo Ltd. (STNE, Financial) by 70.61%.

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.

According to GuruFocus Real-Time Picks, a Premium feature, Mandel’s firm invested in 6.24 million shares of the Cayman Islands-based fintech company, which is also one of

Warren Buffett (Trades, Portfolio)’s holdings, on Aug. 30, impacting the equity portfolio by 0.97%. The stock traded for an average price of $49.50 per share on the day of the transaction.

It now holds a total of 15.09 million shares, which account for 2.34% of the equity portfolio. GuruFocus estimates Lone Pine has lost 5.05% on the investment since establishing it in the third quarter of 2020.

StoneCo, which provides financial technology solutions to merchants and other integrated partners in Brazil to manage e-commerce transactions across in-store, online and mobile channels, has a $13.48 billion market cap; its shares were trading around $43.73 on Friday with a price-earnings ratio of 55.8, a price-book ratio of 4.51 and a price-sales ratio of 22.12.

Having fallen nearly 14% over the past 12 months, the stock is trading close to its 52-week low of $42.44.

The company reported its second-quarter financial results on Aug. 30, posting 613.4 million Brazilian reals ($117.46 million) in revenue and and net income of 526 million reals. The adjusted net loss per share was 0.47 reals.

StoneCo’s financial strength and profitability were both rated 5 out of 10 by GuruFocus. As a result of issuing new long-term debt over the past three years, it has poor interest coverage. In addition, the Altman Z-Score of 2.7 indicates the company is under some pressure as it has recorded losses in operating income and declines in revenue per share over the past several years. The return on invested capital, however, overshadows the weighted average cost of capital, meaning value is being created as the company grows.

The company’s margins and returns exceed a majority of industry peers, but the low Piotroski F-Score of 2 out of 9 is indicative of poor operating conditions.

With a 5.7% stake, Mandel’s firm has dethroned Buffett as StoneCo’s largest guru shareholder. Other top guru investors include

Ron Baron (Trades, Portfolio),
Chase Coleman (Trades, Portfolio),
Steven Cohen (Trades, Portfolio),
Catherine Wood (Trades, Portfolio),
Baillie Gifford (Trades, Portfolio),
Mario Gabelli (Trades, Portfolio),
Murray Stahl (Trades, Portfolio) and Pioneer Investments.

Portfolio composition and other tech investments

Nearly 40% of Lone Pine’s $31.67 billion equity portfolio, which was composed of 36 stocks as of June 30, was invested in the technology sector, followed by smaller holdings in the communication services, consumer cyclical and health care spaces.

Other tech stocks the firm had positions in as of the end of the second quarter included Shopify Inc. (

SHOP, Financial), Microsoft Corp. (MSFT, Financial), Adobe Inc. (ADBE, Financial), Square Inc. (SQ, Financial) and ServiceNow Inc. (NOW, Financial).