Bill Ackman is something of a legend in investment circles. He manages Pershing Square Capital Management, the hedge fund he founded, which has nearly $11 billion in assets under management. The activist investor made his fortune by acquiring significant positions in companies and pushing management to make positive changes that increase shareholder value.
What sets Ackman apart from his hedge fund peers is that Pershing Square has large stakes in just eight to 12 companies, and typically holds them for years. It focuses on high-quality, large-capitalization North American companies with limited downsides and predictable, recurring cash flows. That strategy has been wildly successful for Ackman, as Pershing Square has generated an annualized return of 31% over the past five years, roughly double the performance of the S&P500.
Let’s take a look at the eight stocks that made up Pershing Square’s portfolio to close out 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 stock in 2016 after the company faced a wave of food safety issues that caused the shares to lose half their value.
Ackman credited Chipotle’s “continued focus on exceptional nutrition and operational excellence” for fueling the company’s impressive growth. In 2023, revenue grew 14%, resulting in diluted earnings per share (EPS) increasing 38%. Ackman emphasized that Chipotle’s same-store sales growth of 8% and margin expansion of 26% fueled his confidence that Chipotle has a “long runway for robust growth.”
As a side note, Chipotle recently announced a 50-for-1 stock split, the first in the company’s thirty-year history.
2. Hilton: 17%
Pershing has long held a position in the industry Hilton Worldwide Holdings (NYSE: HLT), with a total of 9 million shares worth nearly $1.9 billion. Ackman invested in the hotel operator in late 2018, significantly increasing his stake at the height of the pandemic, and wagered that travel would eventually recover. That bet paid off big time.
Ackman called Hilton a “high-quality company … led by an exceptional management team.” In 2023, Hilton’s revenue grew 17%, while adjusted earnings per share rose 27%. Ackman cited the company’s earnings, noting that they were 59% above pre-COVID levels, driven in part by average daily revenue per room up 13% from 2022. Ackman is also impressed with the increase in the company’s market share.
3. Restaurant brands: 16%
Astute investors will recognize the trend that is beginning to emerge: a continued commitment to consumer resilience. Pershing Square owns more than 23 million shares Restaurant brands International (NYSE:QSR), with a stake of $1.7 billion. The company owns iconic brands such as Burger King, Popeyes, Firehouse Subs and Tim Hortons. Ackman first invested in the restauranteur 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, which is trading at a discounted valuation.” Global sales rose 12% in 2023, driving earnings per share up 16%. He also likes the company’s focus on the pure franchise royalty model, which offers “decades” of growth in the future.
4. Alphabet (Class C shares): 14%
One of the most important developments in 2023 was Ackman’s investment in Alphabet (NASDAQ: GOOG). Pershing owns 9.4 million non-voting Class C shares worth $1.5 billion. Ackman cited “misplaced concerns about the company’s positioning in artificial intelligence,” resulting in an attractive valuation. That bet is already paying off.
Alphabet’s core advertising business improved consistently in 2023, with revenue growing 10% while earnings per share rose 27%. Ackman believes the power of search and YouTube and the growth of Google Cloud will drive margin expansion, even as Alphabet invests heavily in AI.
Alphabet’s Class C shares have (modestly) outperformed Class A shares over the past five years be able to explain why Ackman possesses more of the former. That said, 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 bets on North American railroads. Pershing returned to one of his favorite investments in 2021 and owns 15 million shares Canadian Pacific Kansas City (NYSE:CP)with a value of more than $1.2 billion. Ackman is attracted to the “oligopolistic industry with significant barriers to entry.”
In 2023, Canadian Pacific’s revenue grew 42% while earnings per share grew just 12%, hampered by labor disruptions and the weak economy. When Canadian Pacific completed its acquisition of Kansas City Southern last year, it created the only railroad with a direct route from Canada to Mexico. Ackman highlights the resulting revenue and cost synergies and its “unique network,” noting that rail is the cheapest and most viable way to move heavy freight over long distances.
6. Howard Hughes Holdings: 11%
Of particular interest is Pershing’s share in Howard Hughes Holdings (NYSE:HHH), with 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 “drive resilient long-term value creation.” He points to the persistent shortage of existing homes, which is causing the demand for new homes to increase sharply.
Howard Hughes Holdings achieved record pre-tax MPC profits and record net operating income from operating assets. If that sounds confusing, that’s because it’s a complicated business designed to generate returns over years or even decades. So it won’t apply to everyone, but Ackman is clearly sold.
7. Alphabet (Class A shares): 6%
Pershing also owns 4.3 million Alphabet (NASDAQ: GOOGL) Class A Shares — of voting rights – worth $693 million. This is just a different class of stock for the same company, so the investment thesis is the same here. (See No. 4.)
8. Lowes: 3%
Until recently, Pershing Square owned about 1.2 million shares Lowe’s (NYSE: LOW) in a stake worth $286 million – but no more. By the time the hedge fund’s annual report was released in February, it emerged that Ackman had sold the remainder of his position. Pershing had retained his stake in Lowe’s since 2018, generating $1.8 billion in profits. The results reflected the company’s transformation, driven by robust same-store sales growth over five years and operating margin growth of 55%.
Ackman revealed that Pershing exited the investment, citing the macroeconomic environment, tough industry conditions and increased downside risk.
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Suzanne Frey, a director 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 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
