From being on top of the investing world in 2014, it’s been a relatively short and hard fall for Bill Ackman‘s Pershing Square, the multi-billion dollar hedge fund that owned $16 billion in equities at the end of 2014, a year in which it returned just over 40%.
However, three losing years have followed, each of which saw Pershing Square finish close to 20 percentage points behind the S&P 500, with the fund being dragged down by failed investments in companies like Valeant Pharmaceuticals Intl Inc (NYSE:VRX) and Chipotle Mexican Grill, Inc. (NYSE:CMG).
In light of the hedge fund’s dreadful performance of late, the billionaire money manager recently cut nearly 20% of his staff and is determined to take a lower public profile while immersing himself in the work of successfully investing his clients’ money. Pershing Square’s latest investor letter also emphasized that the fund will stick to its core investing principles, suggesting that it may have strayed from those in recent years, and stating that the stocks that it purchased in 2017 were aligned with those principles. Among those principles are finding companies with formidable barriers to entry and those with minimal capital market dependency.
One of those new stocks is Nike Inc (NYSE:NKE), which Pershing Square opened a position in during the fourth quarter of last year. We’ll take a look at Ackman’s thoughts on that company and two other prominent positions in this article, based on the fund’s 13F filing released yesterday.
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Nike Inc (NYSE:NKE)
How Many Shares Pershing Square Owns: 5.84 million
How Much Money Pershing Square Has Invested in the Stock: $365 million
About Nike Inc (NYSE:NKE): The sports apparel and equipment company is a global behemoth, with $8.6 billion in sales in the second quarter of its fiscal year 2018 ended November 2017. It also easily topped earnings expectations of $0.40 per share, delivering $0.46 per share.
However, while international expansion picked up speed in the quarter, the North American segment is struggling against robust competition from the likes of Adidas, and a rapidly consolidating wholesale marketplace. Declining footwear sales accounted for the bulk of Nike’s shrinking North American revenue (down by 5%) during a quarter in which it was announced by the NPD Group that Nike’s Air Jordan sneakers have been supplanted in popularity by Adidas’ offerings.
Why Bill Ackman Likes Nike Inc (NYSE:NKE): With Nike hovering around all-time highs, the timing doesn’t seem ideal for Ackman to jump into the stock. However, the billionaire investor sees a lot of growth potential for the company that could translate into those all-time highs eventually being a miniscule remnant of the past.
Among the things that Ackman sees as positives for Nike are the company’s iconic brand, its potential for margin growth expansion through improved manufacturing processes, and its unmatched marketing endeavors. Ackman believes Nike will continue to achieve annual revenue growth in the high-single-digit range, citing the company’s international expansion and pricing power.
On the next page we’ll take a look at two other stocks that the billionaire investor loves and check out his latest thoughts on them.