Bill Ackman (Trades, Portfolio) of Pershing Square Capital Management revealed a 10.49% reduction in his holding of The Howard Hughes Corp. (HHC, Financial).
The guru's hedge fund, based in New York, is known for investing in underperforming companies and pushing for change to unlock shareholder value. The activist strategy has seen success from holdings like Chipotle Mexican Grill Inc. (CMG, Financial) and Starbucks Corp. (SBUX, Financial), but has had previous struggles with Herbalife Nutrition Ltd. (HLF, Financial) and Valeant Pharmaceuticals.
According to Real-Time Picks, a Premium GuruFocus feature, Ackman sold 1.27 million shares of the company on June 3. Overall, the sale had a 1.14% impact on the portfolio. The stock was trading at an average price $58.66 on the day of the sale.
Howard Hughes is a Texas-based real estate development and management company that has its origins in the oil drilling tool business in Dallas. Soon after its founding, the company diversified into real estate, which now accounts for the majority of operations.
The sale came quick on the heels of Ackman's first-quarter purchase of 10 million shares. The purchase saw an average price per share of $106.10. At an average loss of $47.44 per share, the sale overall represented an estimated loss of $60.69 million for Ackman. Overall, GuruFocus estimates the total estimated loss is 17.75%.
As of June 8, the company was trading at $65.66 per share with a market cap of $3.60 billion. According to the Peter Lynch chart, the company has been trading consistently above its fair value over the last several years, meaning that it is overpriced.
GuruFocus gives the company a financial strength rating of 3 out of 10 and a profitability rank of 5 out of 10. Both ratings have dropped by one point since February and GuruFocus shows seven severe warning signs.
The company has poor financial strength due to increasing levels of debt over the last several years. An Altman Z-Score of 0.63 places it well into the distress column, indicating that bankruptcy could occur in the next two years.
Howard Hughes also sees an average weighted cost of capital at 6.28% and a return on invested capital of -0.64%, which will destroy value if the company grows.
Ackman is currently the top shareholder of the company with a 19.88% stake. The next largest guru holdings as of June 8 include Vanguard Group Inc. (Trades, Portfolio), Baillie Gifford & Co. (Trades, Portfolio), Principal Financial Group Inc. (Trades, Portfolio), BlackRock Inc. (Trades, Portfolio) and Caledonia Investments Pty Ltd. (Trades, Portfolio).
Portfolio overview
With 10 total stocks, including two new holdings, Ackman invested the majority of his $6.57 billion equity portfolio in consumer cyclical companies. The other three sectors that he is invested follow far behind in their weighting.
Overall, Ackman's portfolio has seen a 35% turnover rate and has seen more success with his recent purchase of Restaurant Brands International Inc. (QSR, Financial).
Disclosure: No positions mentioned.
Read more here:
- Oakmark International Small Cap Fund's 1st-Quarter New Buys
- Retail Stores Closing Amidst Protests
- Al Gore Sells Credicorp and Adds 3 New Holdings​
Not a Premium Member of GuruFocus? Sign up for a free 7-day trial here.
