In this article, we discuss the top 6 stock picks of Bill Ackman’s Pershing Square portfolio.
William Albert “Bill” Ackman is a renowned hedge fund manager and an activist investor. Born in 1966 and raised in Chappaqua, New York, Ackman completed his BA in Social Studies with magna cum laude distinction from Harvard College in 1988. In 1992, he completed his MBA from Harvard Business School. With his fellow Harvard graduate David P. Berkowitz, Ackman launched an investment firm Gotham Partners, in 1992. Initially, the firm posted impressive returns. However, soon after, it found itself embroiled in a legal battle with a number of external shareholders following its investment in an unprofitable golf course operator. The legal disputes resulted in the firm collapsing.
In 2004, Ackman founded Pershing Square Capital Management by making a cumulative investment of $54 million with his ex-business partner, an insurance and real estate firm Leucadia National. His first move was buying a significant stake in Wendy’s International and pressuring the fast-food chain to spin off its fastest-growing unit Tim Hortons as a separate entity. In 2006, Wendy’s spun off Tim Hortons through an IPO and collected $670 million. Following a disagreement over Wendy’s management succession, Ackman sold his holdings in the company and booked a substantial profit. According to Forbes, Bill Ackman ranks 368 on the Forbes 400 list with a net worth of $3.2 billion as of January 2022.
In 2021, Pershing Square Capital Management gained 27% net. Last year’s success paled in comparison to the fund’s 58% net gain in 2019 and 70.2% net gain in 2020, which was fueled in part by a $2.6 billion short bet on Covid-19’s effect. The hedge fund has a portfolio value of over $9 billion as of Q3 2021. Some of the popular stock picks of Bill Ackman’s Pershing Square Capital Management include Hilton Worldwide Holdings Inc. (NYSE:HLT), Chipotle Mexican Grill, Inc. (NYSE:CMG), and Lowe’s Companies, Inc. (NYSE:LOW).
Bill Ackman of Pershing Square
Our Methodology
In this article, we will be taking a look at the top 6 stock picks of Bill Ackman’s Pershing Square Portfolio. These stocks are a part of the Q3 portfolio of the hedge fund.
Bill Ackman’s Pershing Square Portfolio: Top 6 Stock Picks
6. Domino’s Pizza, Inc. (NYSE:DPZ)
Bill Ackman’s Pershing Square’s Stake Value: $997,897,000
Percentage of Bill Ackman’s Pershing Square’s 13F Portfolio: 10.54%
Number of Hedge Funds: 36
Domino’s Pizza, Inc. (NYSE:DPZ) is the biggest pizza restaurant chain globally, with a presence in over 90 countries through its 18,300 locations. In addition to this, the company sees the possibility of opening over 10,000 new restaurants across its top 15 geographical markets in the coming years. Domino’s Pizza, Inc.’s same-store sales (SSS) have averaged 4.1% and 5.6%, respectively, in the US and the International markets since 2000. The potential for new locations and the stellar SSS growth provides a base for a bright outlook for the company.
The roots of the Ann Arbor, Michigan-based corporation lies in convenient pizza delivery through a network of company and franchise-owned stores. It is estimated that Domino’s Pizza, Inc. sells three million pizzas daily around the globe. The corporation earns revenue through its stores and by selling equipment, food, and supplies to its franchisees.
On January 11, Sara Senatore at Bank of America restarted coverage of Domino’s Pizza, Inc. with a Buy rating and a price target of $642. The analyst highlighted that the restaurant meal consumption started to shift off-premise even before the advent of the COVID-19 pandemic. As a result, the pizza service category was able to outperform the broader restaurant industry in the US. Owing to growth strategies, Domino’s Pizza, Inc. has been able to increase its market share from 17% in 2011 to 26% in 2020.
Domino’s Pizza has been a part of Pershing Square’s portfolio since Q1 2021. The stake was initiated with a holding of 2.03 million shares, which has been since increased to 2.09 million shares at the end of Q3 2021. This is equivalent to 5.75% of the 36.36 million shares outstanding as of January 20.
Domino’s Pizza, Inc. was mentioned in the Q3 2021 investor letter of LRT Capital Management. Here’s what the investment management firm said:
“Domino’s Pizza is the world’s largest franchisor of pizza restaurants with over 13,800 locations in 85 countries. As for any restaurant operator, the key metric to consider for Domino’s Pizza is same-store-sales (SSS) growth. Growing same-store-sales are ultimately how a restaurant business increases earnings from its existing assets. The company continues to impress in this criterion with SSS having grown in the U.S. for 40 consecutive quarters, and an astounding 109 straight quarters internationally.
Two-thirds of the company’s stores are currently abroad, and the international segment remains the company’s largest growth opportunity, as the penetration of convenient fast food remains lower abroad than in the United States. Pizza is a product with exceptionally high gross margins, one that “translates” well across different cultures, and one that literally “travels well”, not losing much of its appeal when delivered in a cardboard box. The rise of 3rd party delivery platforms such as Uber Eats, Doordash and Grubhub is challenging the pizza category as it has expanded the number of choices consumers have for convenient takeout. However, the economics of food delivery remain challenging for most restaurants and platforms alike51, while pizza delivery continues to be highly profitable. Regardless of how the “delivery wars” currently playing out end, Domino’s financial results show little impact of this increased competition, and the company continues to deliver exceptional financial performance.
Domino’s Pizza stock is not optically cheap based on forward earnings, however, the company has routinely reported earnings growth of over 20% in almost all quarters since 2009. Given the company’s high growth rate, international growth opportunities, and capital light business model, which allows for returns on invested capital of over 40%, we are happy to continue to hold the shares.”
Besides Domino’s Pizza, Inc., Hilton Worldwide Holdings Inc., and Chipotle Mexican Grill, Inc., Lowe’s Companies, Inc. is also amongst the top 6 stock picks of Bill Ackman’s Pershing Square Q3 Portfolio.
5. The Howard Hughes Corporation (NYSE:HHC)
Bill Ackman’s Pershing Square’s Stake Value: $1,195,987,000
Percentage of Bill Ackman’s Pershing Square’s 13F Portfolio: 12.63%
Number of Hedge Funds: 25
The Howard Hughes Corporation (NYSE:HHC) is a real estate development and management company with five master-planned communities (MPC) under its wings. In these five MPCs, the company has a hotel, multi-family residential, office, and retail properties.
The Dallas, Texas-based corporation was founded in 2010 following its spin-off from General Growth Properties (GGP). Since then, the stock has been a part of Bill Ackman’s Pershing Square’s portfolio for every quarter except Q2 2012. The hedge fund’s current holding of 13.62 million shares in the Howard Hughes Corporation is the highest in terms of the number of shares held in the past decade and is equivalent to 24.8% of 54.9 million shares outstanding.
On December 29, the Howard Hughes Corporation received the final approval from the state of New York in regards to the construction of the 250 Water Street Project at the Seaport in Lower Manhattan. It will be a mixed-use project, which will comprise community, office, and retail space along with residential units. The $850 million project is expected to start this year and will offer for-rent residential units, given the strong demand for residential units in Lower Manhattan.
During the Q3 2021 call with its investors on November 18, Pershing Square highlighted the “stellar” Q3 results of Howard Hughes Corporation and shared how the company has emerged with a “strong” balance sheet. The hedge fund is very optimistic about the long-term growth prospects of the Howard Hughes Corporation and considers it a cheap stock in terms of valuation.
Investment management firm Clark Street Value mentioned Howard Hughes Corporation in its Q4 2021 investor letter. Here’s what the firm said:
“Howard Hughes Corporation (HHC) is my perennial value trap, but the pitfall of their diversified real estate model is also a benefit, the company is attempting to reposition the narrative back to a land developer for home builders and building sunbelt apartments. They recently purchased a massive plot of land west of Phoenix that apparently has a 50 year development life and will add potentially logistics/warehouse and single family rentals (they’re also building these in their Bridgeland MPC) to their product mix. In disposition news, this week the Wall Street Journal is reporting that they’ve sold 110 N Wacker in Chicago for more than $1B (HHC has JV partners here, the property has debt, but that exceeded my expectations for a covid office sale). They’re still too heavy on office for my liking (about 50% of NOI) but have essentially stopped new development in that sector in favor of covid beneficiaries.”
4. Restaurant Brands International Inc. (NYSE:QSR)
Bill Ackman’s Pershing Square’s Stake Value: $1,464,720,000
Percentage of Bill Ackman’s Pershing Square’s 13F Portfolio: 15.47%
Number of Hedge Funds: 22
Restaurant Brands International Inc. (NYSE:QSR) is a fast food holding company founded in 2014 following the merger of American fast-food chain Burger King and Canadian coffee shop and restaurant operator Tim Hortons. The multinational holding company increased its footprint in 2017 following the acquisition of an American fast-food chain, Popeyes Louisiana Kitchen. The Toronto, Ontario-based corporation is the fifth biggest fast-food restaurant operator globally behind Subway, McDonald’s, Starbucks, and Yum! Brands.
Restaurant Brands International Inc. stock has been a part of Pershing Square’s portfolio since its inception in 2014. The hedge fund initiated a long position of over 38 million shares initially, which was tweaked every quarter, reaching an all-time high of 39.15 million shares in Q1 2016 and an all-time low of 15.08 million in Q4 2020.
In the Q3 2021 investor call, Pershing Square revealed that Restaurant Brands International Inc. is making progress in achieving its growth plans. The hedge fund highlighted that the locations in super-urban locations and restaurants without drive-through facilities are struggling the most at this point in time. However, it believes that the issues related to Burger King in the US are fixable, and the company’s new president Tom Curtis is expected to turn things around.
Restaurant Brands International Inc. was discussed in the Q2 2021 investor letter of Pershing Square Holdings, Ltd. Here’s what the firm said:
“QSR’s franchised business model is a high-quality, capital-light, growing annuity that generates high-margin brand royalty fees from three leading brands: Burger King, Tim Hortons and Popeyes. The company has nimbly navigated the COVID-19 pandemic and continues to make progress on returning its brands to sustainable long-term growth.
Since the onset of the COVID-19 pandemic, the company has bolstered its safety procedures and is accelerating its digital investments by expanding its delivery footprint, modernizing its drive-thru experience, increasing mobile ordering adoption, and improving its loyalty programs. As the global recovery continues to be uneven, these initiatives will allow the company and its franchisees to serve customers in a safe and reliable manner.
Each of the company’s brands are at various stages in recovery, with Burger King and Popeyes having returned to growth, while Tim Hortons is well on its way to recovering. On a two-year basis, same-store-sales grew 2.4% at Burger King and 24.4% at Popeyes during the last quarter. Meanwhile, Tim Hortons in Canada has improved to a mid-single digit decline in July, with each month during the second quarter showing sequential improvement. Tim Hortons’ slower recovery is largely driven by strict COVID-19 restrictions in Canada, which were only recently lifted in large provinces such as Ontario. In rural and suburban parts of Canada where restrictions were lifted earlier, Tim Hortons has already returned to growth. Given the habitual nature of Tim Hortons’ customer base, the recovery in sales will be tied to mobility and reopening.
The company expects to return to its historical mid-single-digit unit growth this year, and recently announced expansions for both Tim Hortons and Popeyes in large international markets. As underlying sales trends at each of its brands continue to improve, and as the impact from COVID-19 restrictions ease, we believe Restaurant Brands’ share price will more accurately reflect our view of its improving business fundamentals.”
In addition to Restaurant Brands International Inc., Bill Ackman’s Pershing Square portfolio includes companies like Hilton Worldwide Holdings Inc., Chipotle Mexican Grill, Inc., and Lowe’s Companies, Inc. as of Q3 2021.
3. Hilton Worldwide Holdings Inc. (NYSE:HLT)
Bill Ackman’s Pershing Square’s Stake Value: $1,702,284,000
Percentage of Bill Ackman’s Pershing Square’s 13F Portfolio: 17.98%
Number of Hedge Funds: 44
Hilton Worldwide Holdings Inc. is a hospitality company with a portfolio of over 18 globally renowned brands that have a presence in over 122 countries through 6,700 properties. The McLean, Virginia-based corporation develops, franchises, leases, and manages these hotels and restaurants.
On January 10, Richard Clarke at Bernstein issued a target price of $161 with a Market Perform rating on Hilton Worldwide Holdings Inc. stock. The analyst thinks that investors need to be selective in picking stocks from the hospitality industry as the stocks are sitting at all-time highs. Clarke gave the stock a Market Perform rating due to the absence of positive catalysts in the short term.
Bill Ackman’s Pershing Square initiated a long position in Hilton Worldwide Holdings Inc. with a stake of over 10.9 million shares in Q4 2018. Since then the hedge fund has increased its holdings to nearly 12.9 million shares as of Q3 2021.
In the last year, the stock price of Hilton Worldwide Holdings Inc. has increased by 32% as of January 20, reflecting the lodging industry’s recovery following the COVID-19 pandemic. The stock has outperformed the S&P 500 Index, which experienced an increase of just over 23% during the same period.
Pershing Square revealed during the Q3 investor call that Hilton Worldwide Holdings Inc. is staging a rapid recovery following the COVID-19 pandemic. However, the organization is still not back to pre-COVID levels in terms of RevPAR, but it’s “getting close.” The hedge fund anticipates the RevPAR recovering to the pre-COVID level in 2022.
In its Q2 2021 investor letter, Pershing Square Holdings, Ltd. discussed its stance on Hilton Worldwide Holdings Inc.. Here’s what the investment management firm said:
“While the hotel industry has been extremely negatively impacted by the COVID-19 pandemic, Hilton has done an excellent job navigating industry volatility, a testament to the company’s high-quality, asset light, high-margin business model and superb management team. From the moment the pandemic began, Hilton’s management team took decisive actions to ensure the company not only managed through what it knew would be a challenging period but also positioned the company to generate improved margins, cash flows and investment returns once the business recovers to pre-COVID-19 demand levels.
Industry RevPAR (the industry metric for same-store sales at a given hotel) bottomed in April 2020 and has shown sequential improvement every quarter as travel and mobility have recovered along with COVID-19 vaccine rollouts and a resumption in travel. In recent months, there is increasing evidence that a robust recovery scenario is underway, led by domestic leisure travel occasions which is currently trending above 2019 demand levels. For the first three weeks of July, the most recent data the company provided, RevPAR has already recovered to 85% of 2019 levels – a significant improvement over prior months driven by increased hotel occupancy and a rapid recovery in rate.
While management anticipates a moderation in leisure demand as we exit the summer, it expects the moderation in leisure travel to be offset by a more pronounced recovery in business transient travel occasions as offices reopen this fall. Although there remains near-term uncertainty in domestic travel given the increase in COVID-19 case numbers following the arrival of the Delta variant in the U.S., we believe that the medium-term outlook continues to point to a robust recovery scenario. Throughout the pandemic, Hilton took actions to reduce corporate expenses by about 20% compared to 2019 levels.
Simultaneously, the company provided resources and support to the Hilton owner community which further solidified Hilton as the preferred franchise partner, thereby expanding Hilton’s pipeline of units around the world.
In the most recent quarter Hilton affirmed its near-to-medium term outlook of mid-single-digit net unit growth, and a resumption of its historical 6-7% net unit growth beginning in 2023-2024, higher growth than competitors, and further evidence of Hilton’s unique business model.
We believe that Hilton will continue to grow its market share over time given independent hotels’ increased interest in seeking an affiliation with global brands, particularly in the wake of the pandemic. While the recovery may continue to be uneven, Hilton has made tremendous progress which will help it become an even more profi table and stronger business going forward.”
2. Chipotle Mexican Grill, Inc. (NYSE:CMG)
Bill Ackman’s Pershing Square’s Stake Value: $2,026,035,000
Percentage of Bill Ackman’s Pershing Square’s 13F Portfolio: 21.4%
Number of Hedge Funds: 39
Chipotle Mexican Grill, Inc. is a fast-casual restaurant specializing in burritos and tacos made in front of the customer. Chipotle Mexican Grill, Inc. owns 2,888 restaurants globally and has opened at eight new locations in Canada. The company is now working on opening new restaurants in the UK, France, and other European countries.
In 2020, Chipotle Mexican Grill, Inc. was able to increase its revenues by over 7%, at a time when the revenue of the restaurant industry fell by over 15% due to Covid-19 restrictions. The increase can be attributed to Chipotle Mexican Grill, Inc.’s swift adoption of digital services for its customers. The fast-casual restaurant digitalized all its locations, increased its partnership with third-party delivery services, and added more Chipotlanes that were solely focused on picking up online orders. As a result, the contribution of online orders increased to 46.2% of the company’s total revenue in 2020 as opposed to 10.9% in 2019.
Nicole Miller at Piper Sandler maintained an Overweight rating on Chipotle Mexican Grill, Inc. with a price target of $2,600 ahead of Q4 2021 results. Chipotle’s stock has lost 20% of its value since late December due to concerns related to the pandemic. However, this does not change the long-term positive outlook of the company along with its strong fundamentals. The analyst thinks that the same-store sales expectations are achievable, and the FY22 estimate of 5% is conservative.
Pershing Square Holdings, Ltd. mentioned Chipotle Mexican Grill, Inc. in its Q2 2021 investor letter. Here’s what the firm said:
“Chipotle’s track record of superb performance has continued in 2021, driven by ongoing strength in digital sales and a recovery of in-store ordering. Digital gains achieved during the pandemic have proven resilient, with digital sales growing 11% in Q2 compared with the prior year, highlighting the limited overlap with in-person occasions. The company has now recovered about 70% of its pre-pandemic in-restaurant sales volumes, with the opportunity to drive these sales meaningfully higher once more schools and workplaces reopen after Labor Day. Near-term performance is accelerating, with management forecasting same-store sales growth from 2019 levels in the low- to mid-20% range in Q3, up from 18% growth last quarter.
In May, Chipotle announced that they would increase hourly wages to a national average of $15 by the end of June, and advertised a path for a new employee to earn an annual income of $100,000 in as little as three and a half years. This resonated extremely well with existing and prospective employees, with staffing levels now above 2019 levels following some previously pronounced labor shortages that limited sales. Chipotle increased menu prices by 3.5% and 4.0% to cover the wage increase, and has not seen any customer resistance, demonstrating the significant pricing power enabled by Chipotle’s brand strength and attractive customer value proposition.
During the second quarter, Chipotle exceeded its 2015 peak average restaurant sales of $2.5 million, a significant milestone in the company’s transformation under the current management team. Management is confident in the growth strategies that will take Chipotle to the next leg of its journey – $3 million in average restaurant sales. Key levers to achieve this objective over the next several years include: (1) disciplined menu innovation, with smoked brisket to come following the successful launch of the quesadilla, (2) data utilization from the company’s 23-million-member loyalty program, (3) throughput improvements as employees and customers reacclimate to in-person ordering, and (4) the expansion of the Chipotlane digital drive-thru format to a higher percentage of the store base. Longer-term, management sees the opportunity to drive average unit volumes substantially above $3 million while also more than doubling the store base to 6,000 restaurants.”
1. Lowe’s Companies, Inc. (NYSE:LOW)
Bill Ackman’s Pershing Square’s Stake Value: $2,076,571,000
Percentage of Bill Ackman’s Pershing Square’s 13F Portfolio: 21.94%
Number of Hedge Funds: 60
Lowe’s Companies, Inc. is one of the biggest home improvement retailers in the world. The Mooresville, North Carolina-based corporation entertains 20 million customers per week through its retail presence in 2,200 locations across the US and Canada. The company has a workforce of over 300,000 employees. Lowe’s Companies, Inc. provides a wide range of products for construction, decorating, maintenance, repair, and remodeling to do-it-yourself (DIY) customers or professional contractors.
On January 18, Steven Zaccone at Citi increased the price target on Lowe’s Companies, Inc. from $270 to $292 and maintained a Buy rating on the stock. The analyst thinks that the investor sentiment has shifted to “defensive, stable margin businesses” like automobile parts retail and home improvement. Zaccone sees very low chances of error in regards to valuation for the hardlines retailing entities. The analyst also expects attractive risk and reward opportunities for long-term investors following the recent decline in the stock price of growth stocks.
In the last year, the stock price of Lowe’s Companies Inc. has increased by over 36% and has outperformed the S&P 500 Index, which experienced an increase of nearly 21.5% during the same period.
The hedge fund restarted a long position in Lowe’s Companies, Inc. in Q2 2018 with 7.72 million shares. Lowe’s Companies, Inc. is also a member of the Dividend Aristocrat list as it has been increasing its dividend for the past 47 consecutive years. The stock’s one-year forward dividend yield stands at 1.36% as of January 20.
You can also take a peek at the 11 Best Robotics Stocks To Buy For 2022 and 10 Best Fertilizer Stocks To Buy Now.
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