If you owned 7.6 million shares of a stock that is trading at about $130 per share and you wanted to get rid of your shares because the stock’s price has been stagnant over the last 5 years, what would you tell people after you sell 1 million shares?
Here is what billionaire Bill Ackman said about Howard Hughes Corp (NYSE:HHC):
“Pershing Square, L.P. is selling Common Shares of the Issuer pursuant to a Rule 10b5-1 Plan for portfolio management purposes only. These sales do not represent a change in the Reporting Persons’ view that the Issuer remains an attractive long-term investment. The Reporting Persons continue to believe that the Issuer is substantially undervalued at its current share price. Through the sale of a portion of a certain Swap, Pershing Square International, Ltd. reduced its economic exposure to the Common Shares of the Issuer for portfolio management purposes.”
We already know that Howard Hughes Corp (NYSE:HHC) shares didn’t appreciate at all since the beginning of this year, whereas Pershing Square generated a total return of 12.7% through early August. This means HHC’s weight in Pershing Square’s portfolio actually declined by more than 10%. If the stock is really substantially undervalued and its weight in the portfolio actually went down significantly, shouldn’t Ackman purchase additional shares of the stock to bring its portfolio weight back to where it was at the beginning of the year?
Instead Ackman decides to reduce the position size by 13%, further reducing the stock’s weight in the portfolio.
This probably means two things. First Ackman clearly believes that the other stocks in his portfolio have better future prospects than Howard Hughes Corp (NYSE:HHC). Second, he might be buying a new stock and he uses the money that’s tied up in HHC to initiate at least part of this new position.
We don’t think our readers should waste their time researching HHC. We highlighted several new stock ideas as part of our flagship hedge fund strategy in the latest issue of our newsletter. Our strategy returned 121% since its inception in May 2014 through the end of August, vs. 66.7% gain for the S&P 500 ETF (SPY) during the same period (see the details here). HHC shares actually lost 20% during this same period. Ackman is moving onto greener pastures. Do you still believe HHC is really an attractive long-term investment?