One of the “hedgies” we track is Pershing Square managed by Bill Ackman, and it has recently filed its 13F form with the SEC. Disclosing its first quarter stock positions, Ackman has made a ton of noteworthy moves, but we’ll keep it to his top five. Most readers probably know this money manager from the Herbalife Ltd. (NYSE:HLF) saga, but there’s more to him than that. Let’s find out what he likes in the equity markets, because it’s worth monitoring the secrets of hedge fund piggybacking.
Ackman’s largest equity holding is in Canadian Pacific Railway Limited (USA) (NYSE:CP), a $3.2 billion stake, up from about $2.5 billion at the end of 2012. Up around 35% in 2013, Canadian Pacific was the subject of an Ackman-led reorganization last year, the railroad operator now has Hunter Harrison at the helm, and investors have rewarded shares nicely since he was appointed to the CEO post.
Paid nearly $50 million in his first six months, Harrison has changed the very culture of Canadian Pacific Railway Limited (USA) (NYSE:CP), primarily by cost cutting tactics. According to The Spec, the CEO has cut nearly 4,000 jobs, closed unprofitable tracks, sold equipment, and more. Ackman’s primary argument—that there was potential for much higher profitability if the right leaders were in place—has proven correct so far, as Canadian Pacific Railway Limited (USA) (NYSE:CP) beat the Street’s earnings estimates by 2% in its latest report. At 17 times forward EPS, there’s still value here moving forward, and it’s likely that Ackman and Harrison’s renovations aren’t finished just yet.
Procter & Gamble
The Procter & Gamble Company (NYSE:PG) is the next on the list, being represented in the equity portfolio of Ackman’s hedge fund by 27,946,892 shares, also flat from the previous round of 13F filings. The value of the stake advanced to $2.2 billion, from $1.9 billion, and at a forward P/E of 18.5x, there’s not an overvaluation present. Procter & Gamble’s sheer dominance in the personal products industry warrants any investor’s attention—we don’t have to tell you that—but one thing that Ackman may be bullish on another CEO.
After CEO Robert McDonald looked like the answer in The Procter & Gamble Company (NYSE:PG)’s latest earnings call, his retirement last month—and the company’s subsequent re-hiring of former CEO A.G. Lafley—can be viewed as a positive in some shareholders’ eyes. Though it’s too early to tell what Lafley’s latest stint as head honcho will bring, multiple reports are saying that Procter & Gamble is planning on splitting itself into four “sectors,” with each sector having its own president.
Although it’s too early to predict the effects that this move might have on The Procter & Gamble Company (NYSE:PG)’s bottom line without knowing more details, it’s worth noting that Wall Street’s average price target predicts another 10-11% upside from current levels. Like Canadian Pacific Railway Limited (USA) (NYSE:CP), this is a company with structural tweaks worth paying attention to.
Pershing Square also disclosed ownership of 74,733,712 shares of General Growth Properties Inc (NYSE:GGP), worth $1.5 billion. This position remained unchanged from the end of December in terms of both price and holding value. The stock of the real estate investment trust (REIT) shows a year-to-date return above 15% in an industry that has returned close to 19% in 2013.