Bill Ackman is something of a legend in investing circles. He manages Pershing Square Capital Management, the hedge fund he founded that manages nearly $11 billion in assets. The activist investor made his fortune by acquiring significant stakes in companies and pushing management to make positive changes that increased shareholder value.
What sets Ackman apart from his hedge fund colleagues is that Pershing Square owns large stakes in just eight to 12 companies and typically holds them for years. The focus is on high-quality, large-cap North American companies with limited downside risk and predictable, recurring cash flows. This strategy has been extremely successful for Ackman, with Pershing Square generating annual returns of around 31% over the past five years double the performance of the S&P 500.
Let’s look at the eight stocks that made up Pershing Square’s portfolio through the end of 2023 and why Ackman chose them.
1. Chipotle: 22%
Chipotle Mexican Grill (NYSE:CMG) is by far Pershing’s largest holding, with approximately 825,000 shares worth more than $2.4 billion. Ackman first bought Chipotle shares in 2016 after the company experienced a spate of food safety issues that caused the stock to lose half its value.
Ackman cited Chipotle’s “continued focus on exceptional food and operational excellence” as driving the company’s impressive growth. In 2023, revenue increased 14%, resulting in diluted earnings per share (EPS) of 38%. Ackman highlighted that Chipotle’s same-store sales rose 8% and margin increased 26%, reinforcing his confidence that Chipotle has “a long path to robust growth.”
As a side note, Chipotle recently announced a 50-for-1 stock split, the first in the company’s 30-year history.
2. Hilton: 17%
Pershing has held a long-standing position Hilton Worldwide Holdings (NYSE:HLT), a total of 9 million shares worth nearly $1.9 billion. Ackman invested in the hotel operator in late 2018 and significantly increased his stake at the height of the pandemic, betting that travel would eventually pick up again. This bet paid off.
Ackman called Hilton a “high-quality company…led by an exceptional management team.” In 2023, Hilton’s revenue increased 17%, while adjusted earnings per share increased 27%. Ackman pointed to the company’s profit, noting it was 59% higher than pre-COVID-19 levels, partly due to average daily revenue per room being 13% higher than in 2022. Ackman is also impressed with the company’s market share increases.
3. Restaurant brands: 16%
Smart investors will recognize the emerging trend – a continued bet on consumer resilience. Pershing Square holds more than 23 million shares of Restaurant Brands International (NYSE:QSR), in a stake valued at $1.7 billion. The company owns such well-known brands as Burger King, Popeyes, Firehouse Subs and Tim Hortons. Ackman first invested in the restaurateur in 2012, before the company even went public, and then increased his stake during the pandemic.
Ackman is excited about Restaurant Brands’ “long-term growth potential trading at a discounted price.” Global revenue increased 12% in 2023, resulting in a 16% increase in earnings per share. He also likes the company’s focus on the franchise-only royalty model, which promises “decades” of growth.
4. Alphabet (Class C Shares): 14%
One of the most important developments in 2023 was Ackman’s investment in alphabet (NASDAQ:GOOG). Pershing holds 9.4 million Class C non-voting shares valued at $1.5 billion. Ackman cited “unwarranted concerns about the company’s positioning in the artificial intelligence (AI) space,” leading to an attractive valuation. This bet is already paying off.
Alphabet’s core advertising business continued to improve throughout 2023 as revenue rose 10% while earnings per share rose 27%. Ackman believes the strength of search and YouTube, as well as the growth of Google Cloud, will drive margin expansion even as Alphabet invests heavily in AI.
Alphabet’s Class C shares have (slightly) outperformed its Class A shares over the past five years May Explain why Ackman has more of them. However, he also owns Class A shares. (See No. 7.)
5. Canadian Pacific Kansas City: 11%
In a page straight out of Warren Buffett’s (and Bill Gates’) playbook, Ackman is betting on North American railroads. Pershing returned to one of his favorite investments in 2021, holding 15 million shares of Canadian Pacific Kansas City (NYSE:CP), worth more than $1.2 billion. Ackman is attracted to the “oligopolistic industry with significant barriers to entry.”
In 2023, Canadian Pacific’s revenue rose 42%, although earnings per share rose only 12% due to labor disruptions and the weak economy. When Canadian Pacific completed its acquisition of Kansas City Southern last year, it created the only rail line with a direct connection from Canada to Mexico. Ackman highlights the resulting revenue and cost synergies as well as its “unique network,” noting that rail is the cheapest and most viable way to transport heavy goods over long distances.
6. Howard Hughes Holdings: 11%
Of particular note is Pershing’s involvement in Howard Hughes Holdings (NYSE:HHH), holds nearly 19 million shares worth $1.2 billion – a 38% stake in the company. Ackman believes the real estate and land developer’s ownership of Master Planned Communities (MPCs) “will result in resilient, long-term value creation.” He points to the ongoing shortage of resold housing inventory, which is leading to strong demand for new homes.
Howard Hughes Holdings delivered record MPC pre-tax profit and record net operating profit on assets. If that sounds confusing, that’s because it’s a complicated business designed to generate returns over years or even decades, so it’s not for everyone – but Ackman is clearly a believer.
7. Alphabet (Class A shares): 6%
Pershing also holds 4.3 million alphabet (NASDAQ:GOOGL) Class A Shares – with Voting rights – worth $693 million. These are just a different class of shares in the same company, so the investment thesis here is the same. (See #4.)
8. Lowe’s: 3%
Until recently, Pershing Square held approximately 1.2 million shares of Lowes (NYSE: LOW) in a stake worth $286 million – but no more. When the hedge fund’s annual report came out in February, it was revealed that Ackman had sold the remaining portion of his position. Pershing had maintained its stake in Lowe’s since 2018, generating a profit of $1.8 billion. The results were driven by business transformation, thanks to robust five-year same-store sales growth and an operating margin that increased 55%.
Ackman announced that Pershing was exiting the investment, citing the macroeconomic environment, difficult industry conditions and increased downside risk.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Danny Vena has held positions at Alphabet and Chipotle Mexican Grill. The Motley Fool holds positions in and recommends Alphabet, Canadian Pacific Kansas City, Chipotle Mexican Grill and Howard Hughes. The Motley Fool recommends Lowe’s Companies and Restaurant Brands International. The Motley Fool has a disclosure policy.
Billionaire Investor Bill Ackman Has 100% of His $11 Billion Portfolio in Just 8 Stocks was originally published by The Motley Fool