Billionaire Bill Ackman Has 60% of His Hedge Fund’s $10 Billion Portfolio in Just 3 Stocks

Bill Ackman is one of the most famous billionaire investors in the world. Despite his star power, he failed to launch a publicly traded investment fund last month because demand fell short of expectations.

Ackman planned to launch a closed-end fund called Pershing Square USA, which would have put him in charge of investing billions of dollars of investors. Although he originally planned to raise $25 billion for the fund, he significantly reduced the amount before abandoning it entirely because demand did not materialize.

But investors interested in following Ackman’s investing style can still follow his hedge fund Pershing Square Capital Management. Ackman discloses his portfolio holdings quarterly to the SEC and is usually very focused. It currently has about 60% of its portfolio invested in just the shares of three companies.

1. The alphabet (22.1%)

Ackman’s largest holding based on Pershing Square’s first-quarter disclosure is Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL). He owns about $700 million in Class A shares and more than $1.5 billion in Class C shares.

Ackman bought shares in Alphabet when many investors were worried about how AI would impact his core business at Google. It turns out that AI is very good for Alphabet’s business.

AI is responsible for pushing Google Cloud to a $10 billion quarterly revenue rate, and its revenue growth is accelerating. Several leading AI companies use Google Cloud to train and deploy their AI models and services.

Meanwhile, core search ad revenue is so far untouched by chatbots like OpenAI’s ChatGPT. Revenue rose 14% in Alphabet’s most recent quarter for its flagship product. That said, it has seen some weakness in YouTube ad revenue growth.

While Google continues to invest heavily in its data centers to build AI training and inference capabilities, it is cutting costs elsewhere in the company. As a result, the operating margin expands rapidly, contributing to the increase in profit. Analysts currently expect Alphabet to grow earnings per share in excess of 20% per year over the next five years. Meanwhile, the stock is trading at just over 20 times forward earnings estimates, making it a very attractive stock right now.

2. Chipotle Mexican Grill (19.5%)

Ackman originally invested in Chipotle Mexican Grill (NYSE: CMG) in 2016 following food safety concerns that left many customers looking for alternatives. Ackman liked the strong brand and leadership of the business and saw an opportunity to buy stock. While it took some time to turn around, the investment has since produced strong, market-beating returns for Pershing Square.

The story continues

Chipotle has defied the rest of the restaurant industry lately. Same-store sales rose 11% in the most recent quarter, driven by both transaction volume and average sales. Chipotle continues to open new stores, adding 52 new restaurants last quarter. As a result, total revenue growth exceeded 18%.

Moreover, it manages costs and expands its operating margin. Restaurant operating margin climbed to 28.9% last quarter, up 140 basis points year-over-year. That number should continue to grow as same-store sales remain strong. As a result, Chipotle should produce strong profit growth.

While the business remains strong, the share price certainly reflects it. The stock trades for about 48 times forward earnings estimates. Investors may be better off waiting for a decline in the share price before adding the stock to their portfolio.

3. Hilton Worldwide (18.6%)

Hilton (NYSE: HLT) is one of the largest hoteliers in the world, with a portfolio of 24 brands and more than 7,600 hotels. Ackman has been watching the company for a long time, briefly accumulating shares in 2016. It wasn’t until late 2018 that he was able to establish a much larger position amid the market downturn.

Hilton’s scale gives it several advantages. It has a massive loyalty program and invests a lot of money in marketing and offering benefits to its customers. With nearly 190 million members, this makes Hilton’s program extremely attractive to hoteliers, giving Hilton more money to invest in loyalty. This network effect creates a moat around his business.

Hilton has expanded its portfolio significantly in recent years and has come out of the travel pandemic slowdown quite strongly. Revenue continues to grow in 2024, with revenue per available room expected to grow between 2% and 4%. And as Hilton continues to add more rooms, that should translate into double-digit revenue growth overall.

Despite strong operating success in recent years, Hilton’s share price may have gotten ahead of itself. The stock currently trades for around 29 times forward earnings. Hilton’s valuation is approximately 18 times management’s adjusted EBITDA outlook for the year. Both ratings are relatively high. And while Hilton might deserve a premium valuation, investors might be best off looking elsewhere first.

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Suzanne Frey, chief executive at Alphabet, is a member of the Motley Fool’s board of directors. Adam Levy has positions in Alphabet. The Motley Fool has positions in and recommends Alphabet and Chipotle Mexican Grill. The Motley Fool recommends the following options: short September 2024 $52 put on Chipotle Mexican Grill. The Motley Fool has a disclosure policy.

Billionaire Bill Ackman Has 60% of His Hedge Fund’s $10 Billion Portfolio in Just 3 Stocks was originally published by The Motley Fool