Bill Ackman’s Pershing Square Portfolio: Top 6 Stock Picks

In this article, we discuss the top 6 stock picks of Bill Ackman’s Pershing Square portfolio. If you want to skip our detailed analysis of Ackman’s history, investment philosophy, and hedge fund performance, go directly to Bill Ackman’s Pershing Square Portfolio: Top 3 Stock Picks.

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 (NYSE:DPZ) 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. (NYSE:DPZ) 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. (NYSE:DPZ) 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. (NYSE:DPZ) 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. (NYSE:DPZ) 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. (NYSE:DPZ), Hilton Worldwide Holdings Inc. (NYSE:HLT), and Chipotle Mexican Grill, Inc. (NYSE:CMG), Lowe’s Companies, Inc. (NYSE:LOW) 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 (NYSE:HHC) 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 (NYSE:HHC) 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 (NYSE:HHC) 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 (NYSE:HHC) and considers it a cheap stock in terms of valuation.

Investment management firm Clark Street Value mentioned Howard Hughes Corporation (NYSE:HHC) 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. (NYSE:QSR) 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. (NYSE:QSR) 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. (NYSE:QSR) 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. (NYSE:QSR), Bill Ackman’s Pershing Square portfolio includes companies like Hilton Worldwide Holdings Inc. (NYSE:HLT), Chipotle Mexican Grill, Inc. (NYSE:CMG), and Lowe’s Companies, Inc. (NYSE:LOW) as of Q3 2021.

 

 

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Disclosure: None. Bill Ackman’s Pershing Square Portfolio: Top 6 Stock Picks is originally published on Insider Monkey.