In this article, we will take a look at billionaire Bill Ackman’s top 6 stock picks.
Billionaire William ‘Bill’ Ackman is the founder of Pershing Square Capital Management, otherwise known as Pershing Square, a hedge fund with a 13F portfolio of over $7.8 billion as of September 30.
In terms of 2022, Pershing Square’s equity positions have fallen around 22% year to date. Due to Ackman’s hedging however, his fund is down 8% on a gross basis according to Institutional Investor as of November 17, 2022. In terms of Ackman’s hedging, his firm made about $2 billion from Ackman’s bet that interest rates will rise.
In terms of inflation, Ackman has said inflation could be structurally higher than it has been historically. Ackman says, “We don’t believe the Fed is going to get back to 2 percent.” Due to deglobalization, Ackman thinks outsourcing to cheap labor markets might not be as cheap in the future. Ackman also thinks the transition to alternative energy could be expensive.
If Ackman is right, interest rates could potentially be higher for periods of time too given the higher inflation.
Inflation
Given Ackman’s bet, it’s clearly in the fund manager’s interest that rates go higher. Whether that happens in the long term is unclear.
In the past two decades, the United States has enjoyed sustained periods of low inflation and low interest rates with the Federal Reserve largely succeeding in its efforts to keep inflation around 2% or lower.
While inflation has been substantially higher in 2022 and interest rates have also increased, the U.S. Federal Reserve has made some progress in terms of its battle against inflation. In October, core inflation rose less than expected with the core index up 6.3%, down from 6.6% in September.
In the long term, the battle against inflation is uncertain as advancements in technology could be fundamentally deflationary and fiscal overspending by the United States could be fundamentally inflationary.
If the Federal Reserve succeeds in its efforts to keep inflation below 2%, the headwinds facing the market could decrease.
Ackman’s Bets
In terms of Bill Ackman’s bets, Pershing Square has 13F equity positions in six stocks as of September 30 – The Howard Hughes Corporation (NYSE:HHC), Canadian Pacific Railway Limited (NYSE:CP), Hilton Worldwide Holdings Inc. (NYSE:HLT), Restaurant Brands International Inc. (NYSE:QSR), Chipotle Mexican Grill, Inc. (NYSE:CMG), and Lowe’s Companies, Inc..
Of Ackman’s bets, only Canadian Pacific Railway Limited and Restaurant Brands International Inc. are up year to date, while The Howard Hughes Corporation, Hilton Worldwide Holdings Inc., Chipotle Mexican Grill, Inc., and Lowe’s Companies, Inc. are each lower with market headwinds being one reason for the declines.
Ackman also exited out of Dominos Pizza Inc in the third quarter.
Methodology
For our list of Billionaire Bill Ackman’s Top 6 Stock Picks, we took all the stocks in Bill Ackman’s Pershing Square’s 13F equity portfolio at the end of Q3 and ranked them based on the firm’s stake value in the stocks.
Billionaire Bill Ackman’s Top 6 Stock Picks
6. The Howard Hughes Corporation (NYSE:HHC)
Pershing Square Capital Management’s Stake Value as of 9/30: $754,421,000
Percentage of Pershing Square Capital Management’s 13F Portfolio as of 9/30: 9.57%
Bill Ackman’s fund kept its share count in The Howard Hughes Corporation constant in Q3 to end the quarter with a stake value of over three quarters of a billion dollars in the the residential land and commercial asset developer.
Although The Howard Hughes Corporation has high quality assets, the substantial increase in interest rates by the Federal Reserve has been a headwind for the housing market. With higher interest rates, mortgage rates have increased and fewer people can afford to purchase homes. With fewer potential home buyers, demand for The Howard Hughes Corporation’s properties isn’t as strong as it used to be.
Furthermore, The Howard Hughes Corporation stock is down substantially due to relative valuation given that the share prices of many other housing developers are down over 20% year to date. Nevertheless, Ackman likes the company’s asset quality and the hedge fund manager still believes the company’s management team has “superb capital allocation and development skills”.
Bill Ackman commented on The Howard Hughes Corporation in an August investor letter,
We believe HHC is extremely well positioned for the current inflationary environment due to its combination of high quality real estate assets and a largely fixed-rate liability structure. We expect the company to benefit from substantial land price appreciation and rental income growth in the coming years.
5. Canadian Pacific Railway Limited (NYSE:CP)
Pershing Square Capital Management’s Stake Value as of 9/30: $1,016,616,000
Percentage of Pershing Square Capital Management’s 13F Portfolio as of 9/30: 12.9%
Pershing Square Capital Management increased its share count in Canadian Pacific Railway Limited by 418% in the third quarter to end the period with over 15.2 million shares worth an aggregate of almost $1.02 billion. Given railroads operate in an oligopolistic industry, Canadian Pacific Railway Limited has pricing power that has insulated it from inflation thus far. For Q3, the company reported adjusted EPS of C$0.97 on sales of C$2.312 billion, versus Q3 2021’s C$0.88 and C$1.942 billion, for example. For the future, Ackman thinks the merger between Canadian Pacific Railway Limited and Kansas City Southern could create further growth opportunities.
Bill Ackman commented on Canadian Pacific Railway Limited in an investor letter in August,
CP is a high-quality, inflation-protected business led by a best-in-class management team that operates in an oligopolistic industry with significant barriers to entry. With an improving volume and pricing outlook combined with the upcoming transformational acquisition of Kansas City Southern (“KCS”), we believe that CP’s prospects are bright.
4. Hilton Worldwide Holdings Inc. (NYSE:HLT)
Pershing Square Capital Management’s Stake Value as of 9/30: $1,210,009,000
Percentage of Pershing Square Capital Management’s 13F Portfolio as of 9/30: 15.36%
Billionaire Bill Ackman’s fund inched up its share count in upscale hotels giant Hilton Worldwide Holdings Inc. by 2% to end the quarter with a stake of over $1.2 billion. For Q3 Hilton Worldwide Holdings Inc. reported adjusted EPS of $1.31 on sales of $2.37 billion versus the consensus of $1.24 and $2.45 billion. System wide comparable RevPAR rose 5% on a currency neutral basis for the period as demand for leisure travel increased year over year.
Ackman mentioned Hilton Worldwide Holdings Inc.’s valuation in an August investor letter,
We find Hilton’s valuation to be compelling given its industry leading competitive position, superb management team, attractive long-term net unit growth algorithm, pricing power, and best-in-class capital return policy.
Hilton Hotels traded for $135.48 on August 19 when Ackman published his investor letter, versus $137.91 on November 21.
3. Restaurant Brands International Inc. (NYSE:QSR)
Pershing Square Capital Management’s Stake Value as of 9/30: $1,286,646,000
Percentage of Pershing Square Capital Management’s 13F Portfolio as of 9/30: 16.33%
Pershing Square Capital Management upped its share count in Restaurant Brands International Inc. by 2% in Q3 to end the period with a stake value of almost $1.29 billion. While the broader market has declined in 2022, Restaurant Brands International Inc. is actually up almost 13.4% year to date as of November 21 as the company’s results have been strong despite the inflationary headwinds.
For the third quarter, Restaurant Brands International Inc. reported EPS of $1.17 on revenue of $1.73 billion versus the consensus of $0.80 and $1.66 billion. For the period, global comparable sales rose 9% and Tim Hortons same store sales rose 9.8%. Burger King same store sales increased 10.3%.
Bill Ackman commented on Restaurant Brands International Inc. in a letter to shareholders on August 2022,
QSR’s franchised business model is a high-quality, capital-light, growing annuity that generates high-margin brand royalty fees from its four leading brands: Burger King, Tim Hortons, Popeyes, and Firehouse Subs. QSR is investing in each of its brands to position them for sustainable, long-term growth…
QSR’s franchised-based royalty model is particularly attractive in an inflationary environment. QSR’s revenues benefit when its franchisees increase prices, but its cost structure is not subject to the same inflationary pressures. QSR can continue to grow its business with minimal capital required as its franchisees open new units.
2. Chipotle Mexican Grill, Inc. (NYSE:CMG)
Pershing Square Capital Management’s Stake Value as of 9/30: $1,660,862,000
Percentage of Pershing Square Capital Management’s 13F Portfolio as of 9/30: 21.08%
Bill Ackman’s fund kept its share count in Chipotle Mexican Grill, Inc. the same in Q3 with a holding of slightly over 1.1 million shares worth $1.66 billion at the end of September. Given the position, Chipotle Mexican Grill, Inc. ranks #2 on our list of Billionaire Bill Ackman’s Top 6 Stock Picks and the stock accounts for 21.08% of the fund’s 13F portfolio at the end of Q3. Although shares of the burrito chain are down 11.6% year to date, Ackman believes the company is well positioned given the current economic climate.
Bill Ackman commented Chipotle Mexican Grill, Inc. in an August shareholder letter,
We believe Chipotle is one of the best-positioned consumer companies for the current inflationary world. Given significant
inflation in food and labor costs, management has planned a menu price increase of approximately 4% for August following
a similarly-sized price increase in March. The company has tremendous pricing power due to the superb quality of its food
which is priced at a discount to many competitors with inferior offerings, marketing focused on food quality and freshness
rather than cost, and a customer base that over-indexes to higher-income consumers, some of whom are trading down
from pricier alternatives.Chipotle’s economic model remains firmly intact, with restaurant-level margins in excess of 25% in the second quarter, up
0.8% year-over-year, and a consistent level of profitability expected for the current quarter. The company is debt-free and
generates nearly all its sales in the U.S., insulating its earnings from the foreign currency headwinds facing many other
large consumer companies.To accelerate Chipotle’s growth beyond the company’s continued strong results, management is focused on improving
throughput for in-store orders, and increasing order accuracy and timeliness for digital orders.
In Q3, Chipotle Mexican Grill, Inc. reported adjusted EPS of $9.51 on sales of $2.2 billion versus the consensus of $9.21 on sales of $2.23 billion. Comparable restaurant sales for the period rose 7.6%. For outlook, management sees fourth quarter comparable restaurant sales growth in the mid to high single digits.
1. Lowe’s Companies, Inc. (NYSE:LOW)
Pershing Square Capital Management’s Stake Value as of 9/30: $1,948,491,000
Percentage of Pershing Square Capital Management’s 13F Portfolio as of 9/30: 24.73%
Pershing Square Capital Management inched up its share count in Lowe’s Companies, Inc. by 2% in Q3 to end the period with a stake value of almost $1.95 billion, or almost a quarter of Bill Ackman’s Q3 13F portfolio. As a result, Lowe’s Companies, Inc. ranks #1 on our list of Billionaire Bill Ackman’s Top 6 Stock Picks. Given the Federal Reserve has raised interest rates substantially in 2022, housing demand has softened and growth for Lowe’s Companies, Inc. isn’t as strong as it was before. For Q3, for example, Lowe’s Companies, Inc. reported U.S. comparable sales of 3%. For FY22, the company sees comparable sales flat to down 1%. Nevertheless, Lowe’s Companies, Inc. still has long term growth potential.
Billionaire Bill Ackman commented on Lowe’s Companies, Inc. in an August investor letter,
Lowe’s is a high-quality business with significant long-term earnings growth potential underpinned by a superb management team that is successfully executing a multi-faceted business transformation…
While we expect that there will be some near-term volatility and continued moderation of DIY demand, growth remains strong for projects requiring professional installation (the “Pro” business) due to a substantial backlog of projects undertaken during COVID, which should support industry growth in the near-term. In addition, we believe the mediumterm growth outlook for the home improvement industry remains strong as demand is likely to normalize at a materially higher level as compared to the pre-COVID era. F
You can also take a look at Warren Buffett’s Top 10 Dividend Stock Picks and 15 Largest Hotel Chains in the US in 2022.
Follow Insider Monkey on Twitter
Suggested articles:
- Bill Gates’ Top 10 Dividend Stocks
- Warren Buffett’s Stock Portfolio and 10 Newest Investments in 2022
- 15 Biggest ESG Companies in the World
This article is originally published at Insider Monkey.
