Bill Ackman is a celebrity in the investment community. He is the head of Pershing Square Capital Management – the hedge fund he founded – which has more than $10 billion in assets under management. The well-known activist, who describes himself as a fundamental value investor, has made a name for himself by taking sizable stakes in companies and pushing leaders to make changes that increase shareholder value.
One of the other noteworthy aspects of Ackman’s investment strategy is that Pershing Square generally owns large shares in only eight to 12 companies and generally continues for years. Hedge funds focus on high-quality, large-cap North American companies with limited and predictable recurring cash flows. The strategy has been very successful for Ackman, as Pershing Square has returned an estimated 31% annualized profit over the past five years double performance of S&P 500.
Let’s look at the nine stocks that make up Pershing Square’s portfolio and the big changes that Ackman made during the second quarter.
1. Hilton: 19%
Pershing holds a long-standing position Hilton Worldwide Holdings (NYSE: HLT)has nearly 9 million shares worth nearly $1.9 billion. Ackman took his first position in the hotel chain at the end of 2018, building on the position during the pandemic, believing that the travel industry would recover. The move was very prescient and very profitable.
Ackman described Hilton as a “high-quality business … led by an outstanding management team.” In the first half of 2024, Hilton’s revenue rose 11%, while adjusted earnings per share (EPS) rose 17%. Ackman cited “excellent cost control and best-in-class returns on capital” as reasons for his bullish view. He also suggested positive industrial tailwinds and international growth will fuel sequential acceleration in the third quarter.
To raise funds for the new purchases (more on that later), Ackman sold about 228,000 shares of Hilton, down about 2%.
2. Restaurant Brand: 16%
Ackman has a long history of betting on consumer spending, and his confidence in the long-term trend remains intact. Pershing Square holds more than 23 million shares of Restaurant Brands International (NYSE: QSR)in shares worth $1.6 billion. The company’s portfolio includes a variety of well-known brands, including Burger King, Popeye, Firehouse Subs, and Tim Hortons. Ackman took his first position in the company in 2012 – when it was still privately held – and increased his holdings during the pandemic.
Ackman pointed to Restaurant Brands’ “long-term growth potential, trading at a discounted valuation.” Total revenue rose 13% during the first half of 2023, as did EPS. He has previously pointed to Restaurant Brands’ franchise royalty model, which he believes offers “decades” of growth potential.
The billionaire investor increased his holdings slightly in Q2, adding 381,000 shares, an increase of about 1.6%.
3. Chips: 15%
There was a seismic shift in Ackman’s portfolio during the quarter, and one of the biggest changes was from Chipotle Mexican Grill (NYSE: CMG). Ackman first took stock in the fast-casual restaurant back in late 2016 after the company suffered a spate of food-borne illnesses that sent its stock down more than 50%.
In the first quarter, this is by far the largest holding of Pershing, but the billionaire investor sold more than 8 million shares, reducing the position by 23%. That makes the stock now almost 29 million shares worth about $ 1.5 billion, which represents 15% of the portfolio.
The move may come as a surprise, given Chipotle’s performance. In the second quarter, revenue increased by 18%, while EPS increased by 32%. The results were driven by same-store-sales that were up 11%.
So why is Ackman selling? While he didn’t talk about the move, it may have come at a price. Ackman’s preference for value investing is well-documented, and with sales of 58 (at the end of the quarter), he may feel the price is ahead of him.
It’s worth noting that Ackman acknowledged the loss of Chipotle CEO Brian Niccol Starbucks. He went on to suggest that Chipotle should not be missed, because of the “incredible team” that Niccol has built.
4. Howard Hughes Holdings: 13%
One position that remained unchanged during the quarter was Howard Hughes Holdings (NYSE: HHH). Pershing still owns almost 19 million shares worth $ 1.3 billion and a total of 38% of shares in property and land developers. Ackman believes the model of master-planned communities (MPCs) will “drive long-lasting, long-term value creation.” Furthermore, the lack of inventory of homes available for sale will continue to lead to strong demand in the new home market.
Howard Hughes Holdings posted record MPC earnings before tax (EBT) and operating profit on net operating assets (NOI). If it sounds like another language, it’s not you. It’s a complex business model that’s meant to generate steady returns over years and decades, so it’s not something to be sad about – but Ackman has clearly done his job.
5. Alphabet (Share Class C): 12%
It’s a stark contrast to 2023, when Ackman added significantly Alphabet (NASDAQ: GOOG) position, which now appears to take some money from the table. Pershing currently owns 7.5 million Class C (non-voting) shares valued at approximately $1.2 billion. sold 1.8 million shares and reduced his position by 20%. This marks another important change in the portfolio.
At that time, there were no material changes in the business. Revenue rose 15% year over year in the second quarter, while EPS rose 31%. Ackman highlighted the company’s “meaningful investment” in AI and its 2 billion users as driving future growth.
Ackman acknowledged the ruling in the antitrust case that found Google maintained an illegal monopoly, saying he was “monitoring it closely.” That said, he believes “the company is well-positioned to explore a wide range of potential outcomes.”
Ackman’s sale of Alphabet shares took place previous court decision, so it likely comes down to value as well. A quick look at the stock chart shows that Class C shares continue to (modestly) outpace Class A shares, which may explain why Ackman owns more of the former. However, they also continue to hold Class A shares (See subhead 7).
5. Kansas City Pacific Canada: 12%
Like Warren Buffett and Bill Gates, Ackman has made strong bets on North American railroads. He previously noted that rail was the cheapest and most viable way to transport heavy goods over long distances. As a result of that view, Ackman further increased his stake Kansas City Pacific Canada (NYSE: CP) in 2021 and currently holds nearly 15 million shares worth nearly $1.2 billion.
Ackman is attracted to “oligopolistic industries with significant barriers to entry.” He also called Canadian Pacific’s acquisition of Kansas City Southern “transformative,” noting it was “the only railroad with a direct route connecting Canada, the United States, and Mexico.”
In the second quarter, Canada Pacific’s revenue rose 14% year-over-year, even as adjusted EPS rose 27%. Ackman believes the company’s “one-of-a-kind network and industry-leading management team” will generate strong double-digit earnings growth for years to come.
7. Alphabet (Class A shares): 6%
Pershing also has 4.3 million Alphabet (NASDAQ: GOOGL) Class A shares — with voting rights — valued at $693 million, have sold 368,000 shares, reducing their holdings by about 8%. It’s just a different class of shares for the same company, so the investment thesis here is the same. (See No. 4.)
8. Brookfield Corp: 3%
Ackman turned heads this week when Pershing revealed it had taken a stake in it Brookfield Corp. Stock price history (NYSE: BN)alternative asset and real estate investment managers. Rising interest rates have hurt many business segments, so the stock has been flat for the past three years, making it an attractive opportunity for Ackman. Pershing Square holds nearly 7 million shares of Brookfield in a stock valued at $321 million, or about 3% of its portfolio.
Brookfield represents an eclectic group of businesses, and despite a challenging environment, the company generated distributable earnings (DE) before realization that increased by 11% year-on-year, while DE rose by 80%.
To be clear, Ackman has not given any details about why he started this stock, saying that he will “discuss this new investment at a later time.”
9. Nike: 2%
Other notable exceptions Nike (NYSE: NKE). Ackman currently owns about 3 million shares of the athletic shoe and apparel company, worth about $239 million or 2% of Pershing’s portfolio.
While Ackman has yet to offer his logic, this is more than clear. Nike stock has lost half its value over the past few years as persistent inflation has punished its growth. Results were flat for fiscal year 2024 (ending May 31), although earnings per share rose 15%.
Given the company’s long track record, Ackman likely believes a turnaround is inevitable. Furthermore, in just 22 times following earnings, Ackman likely saw a deal that, as a value investor, he just couldn’t pass up.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Danny Vena has positions in Alphabet and Chipotle Mexican Grill. The Motley Fool has positions and recommends Alphabet, Brookfield, Brookfield Corporation, Canadian Pacific Kansas City, Chipotle Mexican Grill, Howard Hughes, and Nike. The Motley Fool recommends Restaurant Brands International and recommends the following options: a long January 2025 $47.50 call on Nike and a short September 2024 $52 put on Chipotle Mexican Grill. The Motley Fool has a disclosure policy.
Billionaire Investor Bill Ackman Has 100% of His $10 Billion Portfolio in Just 9 Stocks, But There Are Seismic Changes This Quarter was originally published by The Motley Fool