Bill Ackman doesn’t do much turnover in Pershing Square’s portfolio: a small number of concentrated positions, with little change from quarter to quarter (see Pershing Square's stock picks over time). This is partly because of his long-term, special situations emphasis. The fund recently filed its 13F for the third quarter of 2012, disclosing many of its long equity positions as of the end of September. Here are some of the changes that Pershing Square did make over the previous three months:
Burger King. Pershing Square took a position of about 38 million shares in Burger King Worldwide Inc (NYSE:BKW), which is up about 2% from its June IPO. Burger King is trying to create value by converting many of its restaurants to franchises, which has led to lower revenues and only somewhat lower costs. Its trailing earnings multiple is quite high, suggesting that the market is depending on much better results from this shift in ownership (though the forward P/E of 22 is still higher than at many other restaurants). We think that investors should probably be looking at other restaurants instead, with McDonalds for example being a considerably cheaper stock.
Alexander/Matson. In mid-2012 shipping and logistics company Alexander & Baldwin Holdings changed its name to Matson Inc (NYSE:MATX) and spun out its real estate property operation as Alexander & Baldwin Inc. (NYSE:ALEX). Ackman now has positions in both stocks after having previously owned the old Alexander stock. Hedge funds like to invest in spinouts because management of each company can now focus more on the specifics of what had formerly been one of a larger company’s business segments (read more about spinouts). Our read on the two companies is that Alexander, at 47 times consensus earnings for 2013, doesn’t look like a good value while Matson seems to be improving as a more focused business. Matson’s forward P/E of 15 warrants caution, however, as it is based on high expectations for next year. The spinout story complicates the analysis and so if investors are interested they should definitely look at a company much more closely before buying.
Building positions. Ackman is closely identified with shopping mall operator General Growth Properties Inc (NYSE:GGP), which he had recommended in May 2009 and earned strong returns on; he is currently urging management to sell the company to Simon Property Group though he has been unsuccessful so far. Pershing Square’s ownership of the company ticked up slightly during Q3. General Growth Properties business has been about stagnant recently, and we’re not particularly bullish on the shopping mall industry. We think that we’d avoid the stock. Pershing Square also added to its position in The Procter & Gamble Company (NYSE:PG) with about 28 million shares in its portfolio at the end of September. Procter & Gamble looks good from a defensive perspective- the stock’s beta is 0.3, and the dividend yield is above 3%- but its business has been down. Sell-side analysts expect better results in the next couple years, with expected earnings coming in higher on a forward basis, but we’re not particularly confident in those projections given the company’s recent performance. At a trailing P/E of 18, we’re not sure that it’s a good deal either. Warren Buffett’s Berkshire Hathway has owned a large position in Procter & Gamble but has been selling share more recently.
We don’t think that any of these moves by Pershing Square necessarily make for good picks. Burger King seems overvalued, and Procter & Gamble looks to be priced pretty fairly- not much value opportunity there either. The other three companies we’ve noted here are tough to evaluate, but certainly none of them stand out as screaming buys.