General Electric Company, Valeant Pharmaceuticals Intl Inc.: Billionaire William Ackman’s Recent Comments

U.S. stock market have endured wild swings over the past few months, and some may wonder what has been driving equities so violently. William Ackman of Pershing Square Capital Management believes that leveraged exchange traded funds, or the so-called ETFs, high-frequency trading and other kinds of leveraged strategies stand behind the recent market volatility. He also asserted at the Bloomberg Markets Most Influential Summit in New York that “there is a huge amount of money that moves without regard to long-term economic fundamentals”. It is worth pointing out that the reputable hedge fund manager is just one of the many who blame high-frequency trading for the wild swings in stock markets. However, the following article will discuss Ackman’s view on the pharmaceutical space; his stances on Valeant Pharmaceuticals Intl Inc. (NYSE:VRX), and his thoughts on Nelson Peltz’s activist stake in General Electric Company (NYSE:GE). Most importantly, the last paragraph of this article is reserved for William Ackman’s prediction on the 2016 presidential race.

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William Ackman’s views on the pharmaceutical industry did not change after democratic presidential candidate Hillary Clinton announced her intentions to cut back drug costs and hold the pharma industry accountable for the high cost of medicine. He believes that it is of crucial importance that this “doesn’t lead to regulation that cuts back on innovation in any way”. Ackman reckons that there is a “self-fulfilling prophecy of more and more innovation” within the pharmaceutical industry, which should not be stopped. Moving on to his thoughts on Valeant Pharmaceuticals Intl Inc. (NYSE:VRX), the reputable investor considers that “Valeant has made a massive contribution to drug development”. He believes that acquirers of drugs like Valeant have spurred research and development activities and have propelled investors to pour in more capital into the industry. Most importantly, Pershing Square Capital Management’s CEO and Portfolio Manager outlined that Valeant Pharmaceuticals Intl Inc. (NYSE:VRX), which represents the largest position in his firm’s portfolio with 19.47 million shares, is the most undervalued stock from his portfolio and has the most attractive risk/reward potential.

Fundamentally Ackman is making a very simple point. Research oriented drug companies spend too much money on R&D projects most of which don’t generate any meaningful revenue. And when they come up with successful drugs (by the way this happens less than 10% of the time), they don’t charge enough money. Valeant noticed this fact and has been acquiring these companies above prevailing valuations and is able to do this because it can increase the drug prices and cut unproductive R&D expenses.

Moving on to General Electric Company (NYSE:GE), Bill Ackman acknowledged that his team spent “an enormous amount of time working on GE” even before the company announced the sale of the majority of its real estate assets to The Blackstone Group back in April. However, the hedge fund manager and his team decided not to invest in the stock, saying that it “wasn’t cheap enough”. Let us remind you that Nelson Peltz’s Trian Fund Management disclosed a 49.62 million-share stake in General Electric last week, along with a presentation that pinpoints specific actions that need to be undertaken in order to unlock more shareholder value at the company. Going back to the interview, Bill Ackman said the following regarding Nelson’s stance on GE: “I think Nelson’s correct, I think the direction GE is heading is correct”. He also outline that “GE is actually an extremely well-operated company, but it’s a company that’s been an absolute failure in terms of the way they’ve allocated capital”. In the meantime, Nelson Peltz is anticipated to force, in a friendly manner, General Electric Company (NYSE:GE)’s management to increase leverage, undertake share buyback programs, and produce greater returns from its industrial acquisitions.

Last but not least, Bill Ackman also believes that Michael Bloomberg is going to run for president in 2016 and win. He reckons that the founder of the financial news and data company Bloomberg, who has also served as the Mayor of New York City for three consecutive terms, would make a strong candidate simply because he is a business-oriented, honest, straight-talking lad. The hedge fund manager emphasized that “Bloomberg has all the qualities that people like about Trump but none of the qualities they don’t”. Even more to that, Bill Ackman accentuated that “I would do everything in my power to get this guy elected”. The investor also asserted that stock markets would benefit greatly from a potential announcement of Bloomberg’s candidacy, saying that “the stock market would be up 5 percent the day he announced and 10 percent when he wins.“

Disclosure: None