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.
1. Hilton: 19%
Pershing holds a long-standing position in Hilton Worldwide Holdings (NYSE: HLT), 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%.
2. Restaurant Brands: 16%
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 (NYSE: QSR), 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%.
3. Chipotle: 15%
There was a seismic shift in Ackman's portfolio during the quarter, and one of the biggest changes was that of Chipotle Mexican Grill (NYSE: CMG). 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.
4. Howard Hughes Holdings: 13%
One position that remained unchanged during the quarter was Howard Hughes Holdings (NYSE: HHH). 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.
5. Alphabet (Class C shares): 12%
In stark contrast to the 2023, when Ackman added significantly to his Alphabet (NASDAQ: GOOG) 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).
5. Canadian Pacific Kansas City: 12%
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 (NYSE: CP) 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.
7. Alphabet (Class A shares): 6%
Pershing also holds 4.3 million Alphabet (NASDAQ: GOOGL) 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.)
8. Brookfield Corp: 3%
Ackman turned heads this week when Pershing revealed it had taken a stake in Brookfield Corp. (NYSE: BN), 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."
9. Nike: 2%
The other notable addition was Nike (NYSE: NKE). 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.
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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 in 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: long January 2025 $47.50 calls on Nike and short September 2024 $52 puts 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 Were Seismic Changes During the Quarter was originally published by The Motley Fool