Bill Ackman (Trades, Portfolio), leader of Pershing Square Capital, has revealed his portfolio for the fourth quarter of 2020. The top five trades of the quarter were reductions made in Starbucks Corp. (SBUX, Financial), Restaurant Brands International Inc. (QSR, Financial), Lowe's Companies Inc. (LOW, Financial), Agilent Technologies Inc. (A, Financial) and Hilton Worldwide Holdings Inc. (HLT, Financial).
The guru's New York-based hedge fund takes large positions in underperforming companies with the intent of pushing management to make changes. This activist strategy allows the hedge fund to unlock value for shareholders.
Portfolio overview
At the end of the quarter, Ackman's portfolio contained seven stocks, with no new additions. It was valued at $10 billion and has seen a turnover rate of zero percent. The top holdings at the end quarter were Lowe's, Chipotle Mexigan Grill Inc. (CMG, Financial), Restaurant Brands International, Hilton and Agilent.
By weight, the top three sectors represented are consumer cyclical (76.90%), health care (14.49%) and real estate (8.62%).
Starbucks
After a large addition in the first quarter of 2020, Ackman backed down his Starbucks (SBUX, Financial) holding by 0.6%. The reduction was made with the sale of 60,966 shares that traded at an average price of $95.62 during the quarter. Overall, the sale had an impact of -0.06% on the portfolio and GuruFocus estimates Ackman has gained a total of 40.06% on the holding.
Through a global chain of more than 32,600 company-owned and licensed stores, Starbucks sells coffee, espresso, teas, cold blended beverages, food and accessories. The company also distributes packaged and single-serve coffee, tea, juice and pastries through its own stores, grocery store chains and warehouse clubs under the Starbucks and Teavana brands under the Global Coffee Alliance partnership with Nestle. In addition, Starbucks markets bottled beverages, ice creams and liqueurs through partnerships with Pepsi, Anheuser-Busch, Tingyi and Arla.
On Feb. 19, the stock was trading at $104.67 per share with a market cap of $123.23 billion. According to the GF Value Line, the stock is trading at a significantly overvalued rating.
GuruFocus gives the company a financial strength rating of 3 out of 10, a profitability rank of 8 out of 10 and a valuation rank of 1 out of 10. There are currently five severe warning signs issued for the company, including new long-term debt, assets growing faster than revenue and poor financial strength. 2020 saw debt levels spike to record highs as cash began to recover from a dip in 2019.
Restaurant Brands International
Ackman also reduced his Restaurant Brands International (QSR, Financial) holding during the fourth quarter by 0.32%. The guru sold 80,489 shares that traded at an average price of $58.38 during the quarter. GuruFocus estimates that the holding has gained a total of 51.30% during its lifetime in the portfolio and the sale had an overall impact of -0.05%.
The consolidation of Burger King, Tim Hortons and Popeyes Louisiana Kitchen as Restaurant Brands International represents the third-largest global quick-service restaurant chain, with $34 billion in pro forma system sales generated in 2019 and just over 27,200 units (99% franchised) as of September 2020. Revenue comes largely from franchise royalties and distribution sales to franchisees. As of September, there were 18,700 Burger King locations, more than 4,900 Tim Hortons locations and almost 3,400 Popeyes locations across the globe.
On Feb. 19, the stock was trading at $60.63 per share with a market cap of $18.38 billion. The shares are trading at fair value according to the GF Value Line.
GuruFocus gives the company a financial strength rating of 3 out of 10 and a profitability rank of 7 out of 10. There are currently three severe warning signs issued for declining operating margin percentage, poor financial strength and an Altman Z-Score of 1.07 placing the company in the distress column. Cash flows have decreased for the company over the last several years as dividends have become increasingly taxing on the company.
Lowe's
The guru's Lowe's (LOW, Financial) position was slimmed down by 0.17% with the sale of 20,490 shares. During the quarter, the shares traded at an average price of $162.36. Overall, the sale had an impact of -0.04% on the portfolio and GuruFocus estimates the total gain of the holding at 59.44%.
Lowe's is the second-largest home improvement retailer in the world, operating about 1,970 stores throughout the United States and Canada. The firm's stores offer products and services for home decorating, maintenance, repair and remodeling. Lowe's targets retail do-it-yourself and do-it-for-me customers as well as commercial business clients.
The stock was trading at $178.35 per share with a market cap of $130.53 billion on Feb. 19. The GF Value Line shows the stock trading at a modestly overvalued rating.
GuruFocus gives the company a financial strength rating of 5 out of 10, a profitability rank of 8 out of 10 and a valuation rank of 4 out of 10. There are currently two severe warning signs issued for declining operating and gross margin percentages. Despite the severe warning sign, the company boasts an operating margin of 10.64% that outdoes the majority of the retail industry alongside a similarly strong net margin.
Agilent
Agilent (A, Financial) also saw a small reduction during the quarter of 0.1%. The guru sold 12,407 shares during the quarter at an average price of $110.78. GuruFocus estimates the total gain of the holding at 61.16% and the sale had an impact of -0.01% on the portfolio.
Originally spun out of Hewlett-Packard in 1999, Agilent has evolved into a leading life sciences and diagnostics company. Today, Agilent's measurement technologies serve a broad base of customers with its three operating segments: life science and applied tools (45% of fiscal 2019 sales), cross lab (36% of sales consisting of consumables and services related to its life science and applied tools) and diagnostics and genomics (20%). Just over half of its sales are generated from the biopharmaceutical, chemical and energy end markets, but it also supports clinical lab, environmental, forensics, food, academic and government-related organizations.
On Feb. 19, the stock was trading at $128.71 per share with a market cap of $39.17 billion. According to the GF Value Line, the stock is trading at a significantly overvalued rating.
GuruFocus gives the company a financial strength rating of 6 out of 10, a profitability rank of 8 out of 10 and a valuation rank of 2 out of 10. There is currently one severe warning sign issued for assets growing faster than revenue. The company's return on invested capital easily supports the weighted average cost of capital, allowing value to grow for shareholders.
Hilton
Ackman's reduction in Hilton (HLT, Financial) by 0.1% rounds out his top five trades of the quarter. The guru sold 12,805 shares that traded at an average price of $99.26 during the quarter. Overall, the sale had an impact of -0.01% on the portfolio and GuruFocus estimates Ackman has gained a total of 44.34% on the holding.
Hilton Worldwide Holdings operates 998,000 rooms across 18 brands addressing the midscale through luxury segments as of Sept. 30. Hampton and Hilton are the two largest brands by total room count at 28% and 22%, respectively, as of June 30. Recent brands launched over the last few years include Home2, Curio, Canopy, Tru, and Tempo. Managed and franchised represent the vast majority of adjusted Ebitda, predominantly from the Americas regions.
As of Feb. 19, the stock was trading at $117.01 per share with a market cap of $32.52 billion. The GF Value Line shows the stock trading at a significantly overvalued rating.
GuruFocus gives the company a financial strength rating of 3 out of 10 and a profitability rank of 7 out of 10. There are currently five severe warning signs issued, including new long-term debt, poor financial strength and declining revenue per share. Net income dropped into losses in 2020 as the company continued to struggle with the ongoing pandemic.
Disclosure: Author owns no stocks mentioned.
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