2021 proved to be another bang-up year for Bill Ackman (Trades, Portfolio)’s Pershing Square Capital despite its ongoing issues with its special purpose acquisition company, the pandemic and a number of economic headwinds.
The activist investor disclosed in a monthly report that his New York-based hedge fund posted a net gain of 27% for the year, with a 5.7% increase in the month of December. Excluding the $4 billion in the SPAC that has yet to strike a deal, the firm’s total assets sit at $18.48 billion.
The guru’s $9.46 billion equity portfolio, which consisted of six stocks as of Sept. 30, contributed to this performance. A majority of the portfolio was invested in the consumer cyclical sector at 87.36%, while the real estate space represented 12.64%.
As of the end of the third quarter, Ackman had positions in Lowe’s Companies Inc. (LOW, Financial), Chipotle Mexican Grill Inc. (CMG, Financial), Hilton Worldwide Holdings Inc. (HLT, Financial), Restaurant Brands International Inc. (QSR, Financial), The Howard Hughes Corp. (HHC, Financial) and Domino’s Pizza Inc. (DPZ, Financial).
Lowe’s Companies
Representing 21.94% of the equity portfolio, Lowe’s Companies (LOW, Financial) is Ackman’s largest holding. GuruFocus estimates he has gained 106.48% on the investment so far.
With a return of around 60%, the Mooresville, North Carolina-based company outperformed the S&P 500 Index, which posted a 26.9% return excluding dividends, last year.
The popular home improvement retailer has a $174.38 billion market cap; its shares were trading around $259.39 on Wednesday with a price-earnings ratio of 22.48 and a price-sales ratio of 1.95.
The GF Value Line suggests the stock is significantly overvalued currently based on historical ratios, past performance and future earnings projections.
GuruFocus rated Lowe’s financial strength 5 out of 10. Although the company has issued approximately $9.5 billion in new long-term debt over the past three years, it is still at a manageable level due to adequate interest coverage. It also has a high Altman Z-Score of 4.78 that indicates the company is in good standing despite recording losses in operating income. Since the return on invested capital overshadows the weighted average cost of capital, value creation is occurring as the company grows.
The company’s profitability fared better with a 9 out of 10 rating, driven by operating margin expansion and strong returns on equity, assets and capital that outperform a majority of competitors. Lowe’s also has a moderate Piotroski F-Score of 6 out of 9, meaning business conditions are typical for a stable company. Due to consistent revenue and earnings growth, it also has a predictability rank of five out of five stars. According to GuruFocus, companies with this rank return an average of 12.1% annually over a 10-year period.
Of the gurus invested in Lowe’s, Ackman has the largest stake by far with 1.48% of its outstanding shares. Barrow, Hanley, Mewhinney & Strauss, Tom Gayner (Trades, Portfolio), Elfun Trusts (Trades, Portfolio), Ray Dalio (Trades, Portfolio), Jim Simons (Trades, Portfolio)’ Renaissance Technologies, PRIMECAP Management (Trades, Portfolio), Ron Baron (Trades, Portfolio), Third Avenue Management (Trades, Portfolio), Ken Fisher (Trades, Portfolio), Jeremy Grantham (Trades, Portfolio) and several other gurus also have positions in the stock.
Chipotle Mexican Grill
Accounting for 21.41% of the equity portfolio, Chipotle Mexican Grill (CMG, Financial) is the investor’s second-largest holding. GuruFocus says Ackman has gained approximately 148.77% on the investment since the third quarter of 2016.
With a return of roughly 25% for the year, the fast-casual restaurant chain, which is headquartered in Newport Beach, California, slightly underperformed the index.
The company, which is known for its build-your-own burritos, bowls and salads, has a market cap of $46.19 billion; its shares were trading around $1,634.34 on Wednesday with a price-earnings ratio of 65.87, a price-book ratio of 20 and a price-sales ratio of 6.51.
According to the GF Value Line, the stock is modestly overvalued currently.
Chipotle’s financial strength was rate 6 out of 10 by GuruFocus. In addition to a comfortable level of interest coverage, the Altman Z-Score of 8.83 indicates the company is in good standing even though assets are building up at a faster rate than revenue is growing. The ROIC also eclipses the WACC, so value creation is occurring.
The company’s profitability scored an 8 out of 10 rating, driven by margins and returns that top over half of its industry peers. Chipotle also has a high Piotroski F-Score of 8, meaning operations are healthy. Steady earnings and revenue growth also contributed to a 2.5-star predictability rank. GuruFocus says companies with this rank return, on average, 7.3% annually.
With a 3.96% stake, Ackman is the company’s largest guru shareholder. Other gurus invested in Chipotle are Spiros Segalas (Trades, Portfolio), Dalio, Simons’ firm, Paul Tudor Jones (Trades, Portfolio) and Joel Greenblatt (Trades, Portfolio).
Hilton Worldwide Holdings
With 17.99% space in the equity portfolio, Hilton Worldwide Holdings (HLT, Financial) is the guru’s third-largest stake. GuruFocus data shows Ackman has gained an estimated 90.89% on the investment since establishing it in the fourth quarter of 2018.
Returning 38.85%, the stock outperformed the benchmark index in 2021.
The McLean, Virginia-based company, which operates several well-known hotel chains and resorts, has a $43.19 billion market cap; its shares were trading around $154.95 on Wednesday with a price-earnings ratio of 1,291.26 and a price-sales ratio of 9.01.
Based on the GF Value Line, the stock appears to be significantly overvalued currently.
GuruFocus rated Hilton’s financial strength 3 out of 10. As a result of issuing approximately $1.1 billion in new long-term debt over the past three years, Hilton has poor interest coverage. The Altman Z-Score of 1.4 also warns the company could be in danger of bankruptcy if it does not improve its liquidity.
The company’s profitability fared better, scoring a 6 out of 10 rating on the back margins and returns that outperform over half of its competitors. The moderate Piotroski F-Score of 4 indicates business conditions are stable. Despite recording an operating income loss and declining revenue per share over the past several years, Hilton has a one-star predictability rank. GuruFocus data shows companies with this rank return an average of 1.1% annually.
Ackman is Hilton’s largest guru shareholder with a 4.62% stake. Bill Nygren (Trades, Portfolio), PRIMECAP, Grantham, Jerome Dodson (Trades, Portfolio), Jones, Greenblatt and Mario Gabelli (Trades, Portfolio) also own the stock.
Restaurant Brands International
With a weight of 15.48%, Restaurant Brands International (QSR, Financial) is the fourth-largest position in Ackman’s equity portfolio. GuruFocus data shows he has gained approximately 49% on the long-held investment.
Posting a return of -1.6% for the year, the Canadian restaurant operator underperformed the benchmark.
The company, which owns the Tim Hortons, Burger King, Popeyes and Firehouse Subs brands, has a market cap of $18.72 billion; its shares were trading around $59.23 on Wednesday with a price-earnings ratio of 24.85, a price-book ratio of 7.43 and a price-sales ratio of 5.
The GF Value Line suggests the stock is a possible value trap currently, so potential investors should do thorough research before making a decision.
Restaurant Brands’ financial strength was rated 3 out of 10 by GuruFocus as a result of weak interest coverage and a low Altman Z-Score of 1.17 that warns it could be in danger of going bankrupt. The ROIC exceeds the WACC, however, so value is being created.
The company’s profitability scored a 7 out of 10 rating. Although the operating margin is declining, returns outperform a majority of industry peers. Restaurant Brands also has a high Piotroski F-Score of 8.
Of the gurus invested in the stock, Ackman has the largest stake with 7.6% of its outstanding shares. David Herro (Trades, Portfolio), PRIMECAP, Steven Cohen (Trades, Portfolio), Dalio, Prem Watsa (Trades, Portfolio) and Greenblatt also own Restaurant Brands.
Howard Hughes
Coming in at number five, Howard Hughes (HHC, Financial) represents 12.64% of the guru’s equity portfolio. GuruFocus says Ackman has gained an estimated 9.3% on the investment.
Returning 29.43% for the year, The Woodlands, Texas-based real estate development company outperformed the S&P 500 by a narrow margin.
The company has a $5.6 billion market cap; its shares were trading around $101.54 on Wednesday with a price-book ratio of 1.52 and a price-sales ratio of 6.77.
According to the GF Value Line, the stock is modestly overvalued currently.
GuruFocus rated Howard Hughes’ financial strength 2 out of 10. As a result of issuing approximately $1.5 billion in new long-term debt over the past three years, the company has weak interest coverage. The low Altman Z-Score of 0.81 warns it could be in danger of going bankrupt if it does not improve its liquidity position. The company is also struggling to create value since the WACC has overtaken the ROIC.
The company’s profitability scored a 5 out of 10 rating on the back of declining margins and negative returns that underperform a majority of competitors. Howard Hughes is supported by a moderate Piotroski F-Score of 4, but its one-star predictability rank is on watch as a result of operating income losses and a decline in revenue per share over the past several years.
With a 24.71% stake, Ackman is by far Howard Hughes’ largest guru shareholder. Other guru investors include Baillie Gifford (Trades, Portfolio), Barrow, Hanley, Mewhinney & Strauss, Murray Stahl (Trades, Portfolio), Donald Smith & Co. and Baron.
Domino’s Pizza
Rounding out the investor’s portfolio is Domino’s Pizza (DPZ, Financial), which accounts for 10.54% of the equity portfolio. Ackman has gained an estimated 41.55% on the investment so far according to GuruFocus data.
With a return of 44.27% for 2021, the pizza restaurant chain headquartered in Ann Arbor, Michigan outperformed the S&P 500 Index.
The company has a market cap of $19.11 billion; its shares were trading around $524.02 on Wednesday with a price-earnings ratio of 39.97 and a price-sales ratio of 4.64.
Based on the GF Value Line, the stock appears to currently be modestly overvalued.
Domino’s financial strength was rated 3 out of 10 by GuruFocus. In addition to weak interest coverage, the Altman Z-Score of 2.98 indicates the company is under some pressure. The ROIC exceeds the WACC, however, so value is being created.
The company’s profitability fared much better with an 8 out of 10 rating. Although the operating margin is declining, it and the returns outperform a majority of industry peers. As a result of steady earnings and revenue growth, Domino’s has a four-star predictability rank. According to GuruFocus, companies with this rank return an annual average of 9.8%.
Ackman is Domino’s largest guru shareholder with a 5.75% stake. Simons’ firm, Fisher, Jones and Dalio, among several other gurus, also own the stock.
