Bill Ackman is one of the most successful investors in the world. Thanks to the enormous success of his Pershing Square Capital Management hedge fund, Ackman’s net worth currently stands at almost $9 billion.
But the billionaire isn’t a big fan of diversification. Pershing Square’s portfolio only contains nine stocks. And two of those were added in the second quarter of 2024. Here’s why Ackman bought $514 million worth of those two stocks in Q2.
Ackman’s Two Q2 Additions
Ackman increased his stake in an existing Pershing Square holding in the second quarter by purchasing an additional 381,000 shares Restaurant Brands InternationalHowever, he has also taken on new roles in Brookfield Corp. (NYSE: BN) And Nike (NYSE: NKE).
Pershing Square bought 6.85 million shares of Brookfield stock for $284.7 million at the end of Q2. This was the first time Ackman owned the shares. Brookfield is a global investment firm with five publicly traded subsidiaries:
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Brookfield Asset Management (NYSE: BAM)
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Brookfield Business Partners (NYSE: BBU)
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Brookfield Infrastructure Partners (NYSE: BIP) (NYSE: BIPC)
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Brookfield Renewable Partners (NYSE: BEP) (NYSE: BEPC)
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Brookfield Real Estate Partners (NASDAQ: BPYP.O)
The hedge fund bought 3.04 million shares of Nike stock in Q2, which were worth $229.1 million at the end of the quarter. Ackman first took a position in Nike in the fourth quarter of 2017. He didn’t hold on to it for long, however, and sold the stake in the first quarter of 2018.
Many investors are undoubtedly familiar with Nike. The company is the world’s largest seller of athletic shoes and apparel. Its products are sold in stores (including more than 1,000 Nike stores) and online.
Why Brookfield and Nike?
Ackman hasn’t publicly said why he invested in Brookfield and Nike. But we can make some educated guesses.
I suspect valuation is at the top of the list for both stocks. Brookfield’s forward price-to-earnings ratio is 10.3. That’s dirt cheap compared to the S&P 500which is trading at more than 21 times expected earnings.
Nike isn’t all that cheap, with its forward earnings multiple of 25.2. But the stock is down more than 25% by 2024. Nike is also trading near its lowest trailing price-earnings multiple in the past 10 years.
More important than Ackman’s valuation, however, is the underlying strength of the company. There’s a good case for both Brookfield and Nike on this front.
Brookfield’s distributable earnings rose 79% year-over-year in the second quarter of 2024. The company expects to return at least 15% annually over the long term. Brookfield-owned businesses generate stable cash flow, much of which is supported by inflation-indexed contracts.
Nike is facing headwinds, including lower sales in its lifestyle business and declining customer traffic in Greater China. But the company has successfully navigated such challenges in the past. Nike CEO John Donahoe acknowledged in the company’s June quarterly earnings call that fiscal 2025 “will be a transition year” but said the company is “making real progress on our comeback.”
Are These Stocks a Good Choice for Non-Billionaire Investors?
I predict that Ackman’s bets on Brookfield and Nike will pay off if he holds on to the stocks long enough. But are these stocks good choices for non-billionaire investors? I don’t think they’re bad choices, but there are better options out there in my opinion.
For example, instead of buying Brookfield, consider investing in one of its subsidiaries: Brookfield Infrastructure. If the Federal Reserve cuts rates, bond yields will fall and income investors will seek out higher-paying alternatives. Utility companies like Brookfield Infrastructure should benefit directly from this trend.
Instead of buying Nike, investors might want to look at the following: Simon Properties Group. Like Nike, the real estate investment trust (REIT) has exposure to the retail sector. Simon Properties Group owns top-tier dining, entertainment and retail properties. It’s performing well and recently raised its full-year guidance. A Fed rate cut could also be a catalyst for the REIT stock.
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Keith Speights has positions in Brookfield Infrastructure Corporation, Brookfield Infrastructure Partners, Brookfield Renewable and Brookfield Renewable Partners. The Motley Fool has positions in and recommends Brookfield, Brookfield Asset Management, Brookfield Corporation, Brookfield Renewable, Nike and Simon Property Group. The Motley Fool recommends Brookfield Infrastructure Partners, Brookfield Renewable Partners and Restaurant Brands International. The Motley Fool has a disclosure policy.
Why Billionaire Bill Ackman Bought $514 Million of These 2 Stocks was originally published by The Motley Fool
