Bill Ackman (Trades, Portfolio), manager of Pershing Square Capital Management, disclosed last week that his fund introduced two new positions and boosted four positions during the fourth quarter of 2018.
Managing a portfolio of nine stocks, Ackman buys common shares of public companies and pushes for changes so that the market can realize the values of the companies. The fund manager said in his Feb. 13, 2019, investor presentation that Pershing Square returned -0.7% for 2018, outperforming the Standard & Poor’s 500 index return of -4.4%. Further, the fund said it had a strong start to 2019, with a year-to-date return of 24.7% as of Feb. 12.
According to current portfolio statistics, Ackman’s top sectors in terms of portfolio weight are consumer cyclical, which occupies 72.04% of the equity portfolio, and industrials, which occupies 18.93% of the equity portfolio. In the fourth quarter, the fund established holdings in Hilton Worldwide Holdings Inc. (HLT, Financial) and Starbucks Corp. (SBUX, Financial) and increased its position in Restaurant Brands International Inc. (QSR, Financial), Lowe’s Companies Inc. (LOW, Financial), United Technologies Corp. (UTX, Financial) and Automatic Data Processing Inc. (ADP, Financial).
Hilton Worldwide
Pershing Square invested in 10,947,479 shares of Hilton Worldwide for an average price of $72.11, giving the position 13.19% equity portfolio weight.
Ackman said in his November 2018 shareholder letter the fund established “a new substantially larger investment” in Hilton during the October market selloff, which provided Pershing Square “an opportunity to once again” own shares of the company at an attractive price.
Hilton manages over 750,000 hotel and resort rooms across brands such as DoubleTree, Embassy Suites, Hampton, Homewood Suites and Hilton Grand Vacations Inc. (HGV). The McLean, Virginia-based company said last week that revenues for 2018 were $8.9 billion, up approximately $800 million from 2017 on strong system-wide comparable revenue-per-available-room growth.
GuruFocus ranks the company’s profitability 6 out of 10: Although the company’s returns on equity outperform 99% of global competitors, operating margins are underperforming 88% of global lodging companies despite expanding approximately 4.30% per year over the past five years.
Point72 fund manager Steven Cohen (Trades, Portfolio) also bought shares in Hilton during the quarter.
Starbucks
Ackman’s fund disclosed an 11,754,441-share stake in Starbucks, a major coffee roaster and retailer. Shares averaged $62.79 during the quarter; the fund dedicated 12.71% of its portfolio to the position.
Although Ackman said in his November 2018 shareholder letter that the fund purchased the investment on Oct. 9 at an average price of $51, the fund manager did not have to report the transaction to the Securities and Exchange Commission around that time as the holding represents just approximately 0.95% of Starbucks’ total shares outstanding. SEC regulations require investors to report trades in real time only if the holding represents at least 5% of shares outstanding.
GuruFocus ranks the company’s profitability 7 out of 10 on several positive investing signs, which include expanding profit margins and returns on assets that are outperforming 98% of global competitors.
Restaurant Brands International
The fund added 3,945,425 shares of Restaurant Brands International for $52.30 per share, increasing the equity portfolio 2.72%.
Restaurant Brands International operates quick-service restaurant brands like Burger King, Tim Horton’s and Popeye’s. GuruFocus ranks the company’s profitability 9 out of 10: Profit margins are outperforming over 90% of global competitors despite contracting approximately 6.8% per year over the past five years. Additionally, the company’s Piotroski F-score ranks a strong 7 out of 9.
Lowe’s
The fund added 1,097,790 shares of Lowe’s for an average price of $95.77, increasing the equity portfolio 1.70%.
Lowe’s offers products and services for home decorating, maintenance, repair and modeling. GuruFocus ranks the company’s profitability 7 out of 10 on several positive indicators, which include expanding profit margins and a three-year revenue growth rate of 12.90%, a rate that outperforms 82% of global competitors. Despite this, the company’s business predictability ranks a modest 2.5 stars out of five.
United Technologies
The fund added 630,415 shares of United Technologies for an average price of $124.04, increasing the equity portfolio 1.13%.
Per Ackman and fellow activist investor Daniel Loeb (Trades, Portfolio)’s suggestions, United Technologies announced on Nov. 27 that it plans to separate its operations into three standalone businesses. GuruFocus ranks the company’s profitability 8 out of 10 primarily due to a four-star business predictability rank and operating margins that are outperforming 83% of global competitors despite contracting approximately 2.4% per year over the past five years.
Automatic Data Processing
The fund invested in 40,699 shares of Automatic Data Processing for an average price of $140.77, increasing the equity portfolio 0.09%.
Automatic Data Processing provides various solutions for employers, vehicle retailers and manufacturers. GuruFocus ranks the company’s profitability 8 out of 10 on several positive investing signs, which include expanding profit margins and consistent revenue growth. Despite this, Automatic Data Processing’s business predictability ranks a modest two stars out of five on slightly inconsistent earnings growth over the past 10 years.
Disclosure: No positions.
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