Bill Ackman's Bold Investment Strategy: 37% of Portfolio in Two Stocks

Billionaire Bill Ackman Has 37% of His Pershing Square Portfolio Invested in 2 Brilliant Stocks | The Motley Fool

Billionaire Bill Ackman has a substantial portion of his portfolio invested in Alphabet and Chipotle Mexican Grill. Billionaire Bill Ackman is the founder and CEO of Pershing Square Capital Management, a hedge fund that returned 183% in the five-year period that ended in June 2024. During the same period, the S&P 500 (^GSPC 0.20%) advanced just 102%. Ackman is no stranger to the public spotlight. His failures and successes have been widely chronicled by the media, including the $1 billion he lost betting against vitamin company Herbalife and the $2.6 billion he made in a matter of weeks during the pandemic. Ackman's market-beating track record makes him a worthwhile case study. For instance, 37% of his Pershing Square portfolio was invested in two stocks as of the June quarter: 20% in Alphabet (GOOGL 1.03%) (GOOG 0.96%) and 17% in Chipotle Mexican Grill (CMG -2.78%). Those stocks have been brilliant investments in the past. Both have roughly doubled the gains in the S&P 500 since Ackman first bought shares. Admittedly, he reduced his position in Alphabet and Chipotle by 16% and 23%, respectively, during the June quarter. Those are sizable cuts, but Ackman's current asset allocation is still a clear sign of confidence. Alphabet reported solid financial results for the second quarter. Revenue increased 14% to $84.7 billion and GAAP net income jumped 31% to $1.89 per diluted share. CEO Sundar Pichai said, "Our strong performance this quarter highlights ongoing strength in search and momentum in cloud." The only blemish was YouTube ad revenue, which narrowly missed estimates, causing the stock to sink. Adding to the downward momentum was the recent ruling that Alphabet violated antitrust laws by paying billions of dollars to browser developers and smartphone makers to ensure Google was the default search option. For instance, Alphabet paid Apple about $20 billion in 2022 for default placement on the Safari browser and iOS devices, according to The Wall Street Journal. Similar deals will likely be banned in the future, but the Justice Department is also weighing other options to reduce Alphabet's monopoly power. That includes a forced divestiture of its Chrome browser or Android operating system. Google Search is directly integrated with those products, which undoubtedly helped it become the dominant search engine. Whispers about a possible breakup caused Alphabet shares to sink 3% on Wednesday, but investors are jumping at shadows. Google controls about 90% of the online search market, and it is the largest digital advertiser in the world. That dominance is built on expertise in search algorithms and artificial intelligence (AI), and it would not disappear if the company were forced to divest Chrome or Android. Additionally, none of the legal cases pending against Alphabet target its cloud computing division, which should be an important growth driver as business ramp investments in AI. Forrester Research recently recognized Google as a leader in AI infrastructure solutions and large language models. Those strengths helped the company gain a percentage point of market share in the June quarter. Going forward, Wall Street expects Alphabet to grow earnings at 16% annually through 2026. That makes its recent valuation of 23 times earnings look reasonable. Investors should capitalize on the recent drawdown and buy a few shares on the dip. Chipotle also had a good second quarter. Revenue increased 18% to $3 billion on strong same-store sales, and non-GAAP net income jumped 36% to $0.34 per diluted share. CEO Brian Niccol said, "Our focus and training around throughput paid off as we were able to meet the strong demand trends with terrific service and speed." Importantly, Chipotle once again bucked the contractionary trend facing the broader restaurant industry. Whereas the average restaurant reported a decline in same-store sales and customer traffic in the second quarter, Chipotle reported an 11.1% increase in same-store sales, reflecting 8.7% growth in transactions and 2.4% growth in check size. Focus on throughput is one reason the company has been so successful. Employees are frequently retrained on fundamentals, and Chipotle has deployed new coaching tools and automation solutions. Those efforts are collectively moving people through the line more quickly, improving sales and customer satisfaction in the process. More broadly, Chipotle has built brand authority with its "food with integrity" philosophy. The company sources only responsibly raised meats free from antibiotics and hormones, and it uses only fresh ingredients. That means no preservatives or freezers are involved. As a result, customers see Chipotle as a delicious and slightly healthier option than fast food alternatives. Going forward, Wall Street expects Chipotle to grow earnings at 17% annually through 2026. That consensus estimate makes its recent valuation of 50 times earnings look a bit pricey, but investors may not get a much better chance to buy shares in the near term. The stock recently declined on news that CEO Brian Niccol will leave the company at the end of August to assume the CEO position at Starbucks. Investors interested in owning Chipotle should consider buying a small position today.

Billionaire Investor Bill Ackman Has 100% of His $10 Billion Portfolio in Just 9 Stocks, But There Were Seismic Changes During the Quarter | The Motley Fool

One of the world's most successful hedge fund managers boasts an extremely concentrated portfolio, so it attracts attention when he makes big changes. Bill Ackman is something of a celebrity in the investing community. He heads up 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, made a name for himself by taking sizable stakes in companies and pushing leaders to make changes that increase shareholder value. One of the more noteworthy aspects of Ackman's investment strategy is that Pershing Square generally owns large stakes in just eight to 12 companies and generally holds them for years. The hedge fund focuses on high-quality, large-cap, North American companies with limited downside and predictable, recurring cash flows. That strategy has been wildly successful for Ackman, as Pershing Square has generated a 31% annualized return over the past five years, roughly double the performance of the S&P 500. Let's look at the nine stocks that made up Pershing Square's portfolio and the big changes Ackman made during the second quarter. Pershing holds a long-standing position in Hilton Worldwide Holdings (HLT 0.89%), owning nearly 9 million shares worth nearly $1.9 billion. Ackman took his first position in the hotel chain in late 2018, building that position during the pandemic, trusting that the travel industry would recover. The move was prescient and has been extremely profitable. Ackman describes Hilton as a "high-quality business ... led by an exceptional management team." In the first half of 2024, Hilton's revenue grew 11%, while adjusted earnings per share (EPS) jumped 17%. Ackman cited the company's "excellent cost control and continued best-in-class capital return" as reasons for his bullish view. He also suggested positive industry tailwinds and international growth would fuel sequential acceleration in the third quarter. To raise funds for new purchases (more on that in a bit), Ackman sold about 228,000 shares of Hilton stock, a decrease of about 2%. Ackman has a long history of betting on consumer spending, and his confidence in that long-term trend remains intact. Pershing Square holds more than 23 million shares of Restaurant Brands International (QSR -0.65%), in a stake worth $1.6 billion. The company's portfolio includes a host of well-known brands, including Burger King, Popeye's, 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 points to Restaurant Brands' "long-term growth potential, trading at a discounted valuation." Total revenue is up 13% during the first half of 2023, as is EPS. He has previously pointed to Restaurant Brands' franchised royalty model, which he believes offers "decades" of potential growth. The billionaire investor increased his stake slightly in Q2, adding 381,000 shares, an increase of about 1.6%. There was a seismic shift in Ackman's portfolio during the quarter, and one of the biggest changes was that of Chipotle Mexican Grill (CMG -2.78%). Ackman first took a stake in the fast-casual eatery back in late 2016 after the company experienced a rash of food-borne illnesses that pushed the stock down more than 50%. In the first quarter, this was by far Pershing's largest holding, but the billionaire investor sold more than 8 million shares, reducing his position by 23%. That brings his current stake to nearly 29 million shares worth roughly $1.5 billion, representing 15% of the portfolio. The move might seem surprising, given Chipotle's performance. In the second quarter, revenue increased 18%, while EPS jumped 32%. The results were driven by same-store-sales that climbed 11%. So why did Ackman sell? While he didn't specifically address the move, it likely came down to valuation. Ackman's preference toward value investing is well documented, and at 58 times sales (at the end of the quarter), he likely felt the price had gotten ahead of itself. It's worth noting that Ackman acknowledged the loss of Chipotle CEO Brian Niccol to Starbucks. He went on to suggest Chipotle wouldn't miss a beat, thanks to the "extraordinary team" Niccol had built. One position that remained unchanged during the quarter was Howard Hughes Holdings (HHH 0.04%). Pershing still owns nearly 19 million shares worth $1.3 billion and amounting to a 38% stake in the property and land developer. Ackman believes the master-planned communities (MPCs) model will "drive resilient, long-term value creation." Furthermore, the inventory shortage of existing homes for sale will continue to drive robust demand in the new housing market. Howard Hughes Holdings delivered record MPC earnings before taxes (EBT) and record operating asset net operating income (NOI). If that sounds like another language, it isn't you. This is a complicated business model that's intended to generate ongoing returns over years and decades, so it isn't for the faint of heart -- but Ackman has clearly done his homework. In stark contrast to the 2023, when Ackman added significantly to his Alphabet (GOOG 0.96%) position, he now appears to be taking some money off the table. Pershing now holds 7.5 million Class C shares (no voting rights) worth roughly $1.2 billion, having sold 1.8 million shares and reducing his position by 20%. This marked the other notable change in his portfolio. At that time, there was no material change in the business. Revenue grew 15% year over year in the second quarter, while EPS climbed 31%. Ackman highlighted the company's "meaningful investment" in AI and its 2 billion users as driving future growth. Ackman acknowledged the verdict in the antitrust case that found that Google maintained an illegal monopoly, saying he's "monitoring closely." That said, he believes "the company is well-positioned to navigate a range of likely potential outcomes." Ackman's sale of Alphabet shares occurred before the court decision, so it likely came down to valuation as well. A quick look at the stock charts shows that Class C shares continue to (modestly) outpace Class A shares, which might explain why Ackman owns more of the former. He does, however, continue to hold Class A shares as well (See subhead 7). Like Warren Buffett and Bill Gates, Ackman has placed a solid bet on North American railroads. He previously noted that rail is the cheapest, most viable way to transport heavy freight over long distances. As a result of that view, Ackman re-upped its stake in Canadian Pacific Kansas City (CP -0.44%) in 2021 and currently holds nearly 15 million shares worth nearly $1.2 billion. Ackman is attracted by the "oligopolistic industry with significant barriers to entry." He also calls Canadian Pacific's acquisition of Kansas City Southern "transformative," noting it's the "only railroad with a direct route linking Canada, the United States, and Mexico." In the second quarter, Canadian Pacific's revenue grew 14% year over year, though adjusted EPS grew 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. Pershing also holds 4.3 million Alphabet (GOOGL 1.03%) Class A shares -- with voting rights -- worth $693 million, having sold 368,000 shares, a decrease in its holdings of about 8%. These are merely a different class of shares for the same company, so the investing thesis here is the same. (See No. 4.) Ackman turned heads this week when Pershing revealed it had taken a stake in Brookfield Corp. (BN 0.15%), an alternative asset and real estate investment manager. Rising interest rates have weighed on many of its business segments, so the stock has been essentially flat over the past three years, making it a compelling opportunity for Ackman. Pershing Square holds nearly 7 million shares of Brookfield in a stake worth $321 million, or about 3% of its portfolio. Brookfield represents an eclectic group of businesses, and despite the challenging environment, the company generated distributable earnings (DE) before realizations that increased 11% year over year, while DE was up 80%. To be clear, Ackman hasn't yet provided any insight into why he initiated this stake, saying he plans to "discuss these new investments at a later date." The other notable addition was Nike (NKE 0.89%). Ackman now owns roughly 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 provide his logic, this one is more clear-cut. Nike's stock has lost half its value over the past few years as the ongoing bout with inflation punished its growth. Revenue was flat for its 2024 fiscal year (ended May 31), though its earnings per share climbed 15%. Given the company's long track record, Ackman likely believes a turnaround is inevitable. Furthermore, at just 22 times trailing earnings, Ackman likely saw a deal that, as a value investor, he simply couldn't pass up.