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Meet the stock-split stocks that make up 23% of billionaire Bill Ackman’s $11 billion portfolio

When it comes to hedge fund managers, Bill Ackman is in a class of his own. He etched his name in Wall Street history by bucking hedge fund norms, acquiring significant stakes in just a few companies and holding them for the long term. Furthermore, as a well-known activist investor, he sometimes involves companies in trouble and pressures management to make changes that positively impact shareholder value.

Ackman heads Pershing Square Capital Management, the hedge fund he founded that has more than $11.3 billion in assets under management. Pershing typically owns between eight and twelve major North American companies. To achieve savings, they must be of high quality, have limited downside and generate predictable, recurring cash flows. This playbook has been extremely successful for Ackman, as Pershing Square has delivered an annualized return of 31% over the past five years, almost twice the returns of the S&P500.

As of 2023’s close, Pershing Square had stakes in just eight stocks, but one of them stands head and shoulders above the rest.

A person sitting at a desk looking at graphs on multiple device monitors.

Image source: Getty Images.

Let the “chips” fall where they may

This is by far the largest holding in Pershing Square’s portfolio Chipotle Mexican Grill (NYSE: CMG). Ackman has amassed nearly 825,000 stocks currently worth more than $2.6 billion, representing a whopping 23% of his portfolio.

Chipotle is not only one of the best-known companies in the world, but also one of the most successful. Since the company’s debut in 2006, the stock has risen from just $22 to around $3,200 at the time of writing, delivering a return of 14,441%.

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In late March, Chipotle announced that its board of directors had approved a 50-to-1 stock split, making it “one of the largest stock splits in the history of the New York Stock Exchange (NYSE).” The split requires shareholder approval when Chipotle holds its annual meeting on June 6. If the measure is approved, and there is no reason to believe otherwise, every known shareholder will receive an additional 49 shares for every share he owns after the market closes. on June 25.

For context, instead of owing one share worth $3,200, investors will own 50 shares worth $64 each.

Why Ackman picked Chipotle

Ackman picked just eight stocks to make up Pershing Square’s $11 billion portfolio, so it’s already a rare company to make the cut. He first added shares of Chipotle in 2016 after the fast-casual pioneer suffered a wave of food safety issues that sent diners and investors alike packing, and cut its stock price in half.

But where some investors saw risk, Ackman saw opportunity – thanks in part to his long-term prospects. Pershing Square’s most recent annual report cited Chipotle’s “continued focus on exceptional nutrition and operational excellence” as a catalyst for the robust growth. The report also noted Chipotle’s “leading same-store sales growth and profitability.”

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Ackman is clearly onto something. In the first quarter, even as rivals faced headwinds, Chipotle’s sales rose 14% to $2.7 billion, thanks to comparable restaurant sales that rose 7%. The company’s operating margin and restaurant-level operating margin have both increased thanks to Chipotle’s fiscal discipline. Perhaps even more impressive were the company’s earnings, as adjusted earnings per share (EPS) rose 27% to $13.37.

Chipotle “has a long path to robust growth,” Ackman said. He cites the company’s ability to consistently improve same-store sales and profitability, which is evident from its recent results. He also points to the untapped growth in North America, given Chipotle’s plans to expand the region by 8% to 10% annually. Not to mention continued international expansion, including growth across Europe and a recently signed franchise agreement to expand into the Middle East.

Finally, in his annual report, Pershing mentioned CEO Brian Niccol’s success, writing, “Chipotle shares are up more than tenfold since Brian became CEO in March 2018. What more can we say?” High praise indeed, coming from one of the most successful hedge funds in the world.

Are Chipotle Stocks a Buy Now?

Chipotle has already posted impressive gains so far in 2024, with the stock up 40% year to date (at time of writing), on top of last year’s 65% gain. As a result, the stock is somewhat pricey and currently sells for 58 times expected earnings and almost seven times expected revenue. A valuation of that size suggests that investors have built high expectations into the stock price. If Chipotle doesn’t meet these expectations, the stock could fall.

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That said, for investors with a long investment horizon, Chipotle still bears all the hallmarks of a long-term winner. Given the company’s performance and continued expansion opportunities, the evidence suggests that we could be having this discussion about Chipotle’s merits in five to 10 years. again.

For investors who simply can’t bear to buy the stock at its current price, add it to your watchlist and buy on any weakness.

Should You Invest $1,000 in Chipotle Mexican Grill Now?

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Danny Vena holds positions in Chipotle Mexican Grill. The Motley Fool holds positions in and recommends Chipotle Mexican Grill. The Motley Fool has a disclosure policy.

Meet the stock splits that make up 23% of billionaire Bill Ackman’s $11 billion portfolio, originally published by The Motley Fool

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