Top Conviction Picks from Bill Ackman
Bill Ackman is an activist investor. He buys the common stocks of public companies, and pushes for changes so that the market can realize the values of the companies. Ackman buys stocks trading at a discount, and sells when the companies reach their appraised value.
Ackman is deemed a long-term investor who takes advantage of short-term downward moves in prices. He has a very concentrated portfolio.
Some of his top stocks include:
Canadian Pacific Railway Ltd (CP): Ackman INITIATED a new position in CP
Canadian Pacific is a CAD 5.0 billion railroad operating on nearly 14,800 miles of track across most of Canada and in the Midwestern and Northeastern United States. During 2010, CP carried shipments of intermodal containers, grain (representing 23%), coal (representing 10%), fertilizer (representing 10%), and a diverse mix of other merchandise.
Canadian Pacific is focusing on structural cost savings by consolidating eleven service areas into six regions. This will enable running longer and heavier trains and is expected to give on-time performance.
In addition, the company is strengthening its balance sheet by improving near-term liquidity with debt offering and pension prepayment. The company expects to lower its debt position by $250 million within fourth quarter 2011 and seeks to reward its shareholders through increased dividend payments.
Lowe's Companies Inc. (LOW): Ackman INITATED a new position in LOW
Lowe's is the second-largest home-improvement retailer in the world and operates in the United States, Canada, and Mexico. The company's stores offer products and services for home decorating, maintenance, repair, and remodeling.
Lowe's is in good financial health, with a debt/capital ratio of about 0.27. The firm easily covers interest expense more than 12 times with its earnings before interest after tax.
Lowe's scale and efficiency combine to create one of the few wide economic moats in the retail industry.
Kraft Foods Inc. (KFT): Ackman INCREASED his position last quarter
Kraft is the leading packaged food firm in North America and the second-largest packaged food company in the world behind Nestle. The company sells snacks, beverages, cheese, and convenient meats, with a product portfolio that includes well-known brands such as Nabisco, Oscar Mayer, Maxwell House, Jell-O, Chips Ahoy, Cadbury, Trident, Oreo and Kool-Aid.
The firm has been generating economic value for shareholders with relatively stable operating results for the past few years. The firm has achieved a very nice dividend yield of 3.3%. The firm is expected to pay out about 51% of next year's earnings to shareholders as dividends.
Citigroup Inc. (C): Ackman INCREASED his position last quarter
Citigroup is a global financial services company doing business in more than 160 countries and jurisdictions. It serves commercial and consumer clients through its regional consumer banking segment and provides investment banking, treasury, and securities services through its institutional clients group.
Citigroup is now in good financial health, with a tangible common equity ratio of 7.5% and an allowance for loan losses sufficient to cover more than 5% of its loan book. The company is also now consistently profitable.
Family Dollar Stores Inc. (FDO): Ackman INCREASED his position last quarter
Family Dollar Stores operates a chain of about 6,800 general merchandise discount stores across 44 states. The firm provides low-income consumers a variety of apparel, food, cleaning supplies, beauty and health products, toys, pet products, and seasonal goods, with prices that generally range from less than $1 to $10. Stores are often situated in convenient neighborhood locations.
The company is doing well from a financial perspective. As of November, long-term debt totaled $234 million. Earnings before interest and taxes were a comfortable 43 times interest expense. The company is expected to generate sufficient free cash flow to support expansion and to return value to shareholders through share repurchases and dividends.