Why billionaire Bill Ackman bought $514 million in these two stocks

Bill Ackman is among the most successful investors on the planet. Thanks to the extraordinary success of his hedge fund Pershing Square Capital Management, Ackman’s net worth currently totals nearly $9 billion.

But the billionaire is not a big fan of diversification. Pershing Square’s portfolio includes only nine stocks. And two of those were added in the second quarter of 2024. That’s why Ackman bought $514 million worth of those two shares in Q2.

Ackman’s two additions in Q2

Ackman boosted his stake in an existing Pershing Square holding in Q2 by buying an additional 381,000 shares of Restaurant Brands International. However, it also initiated new positions in Brookfield Corp. (BN 1.80%) and NIKE (NKE 0.40%).

Pershing Square bought 6.85 million shares of Brookfield stock valued at $284.7 million at the end of the second quarter. This was the first time Ackman has owned the stock. Brookfield is a global investment firm with five publicly traded subsidiaries:

• Brookfield Asset Management (BAM 3.63%)
• Brookfield Business Partners (BBU 0.10%)
• Brookfield Infrastructure Partners (BEEP 1.52%) (BIPC 0.15%)
• Brookfield Renewable Partners (BEP 2.64%) (BEPC 3.42%)
• Brookfield Property Partners (BPYP.O -0.26%)

The hedge fund acquired 3.04 million shares of Nike in Q2, worth $229.1 million at the end of the quarter. Ackman first initiated a position in Nike in the fourth quarter of 2017. However, he did not hold it for long, exiting the stake in the first quarter of 2018.

Many investors are undoubtedly already familiar with Nike. The company is the largest seller of athletic footwear and apparel in the world. Its products are sold in retail stores (including more than 1,000 owned by Nike) and online.

Why Brookfield and Nike?

Ackman has not publicly stated why he invested in Brookfield and Nike. However, we can make some pretty good guesses.

I suspect valuation is at the top of the list for both stocks. Brookfield’s forward price-to-earnings ratio is 10.3. It is very cheap compared to S&P 500which trades at over 21 times forward earnings.

Nike isn’t as cheap with a forward earnings multiple of 25.2. But the stock is down more than 25% in 2024. Nike is also trading near its lowest price-to-earnings ratio in 10 years.

For Ackman, however, more important than the valuation is the underlying strength of the business. There’s a good case for both Brookfield and Nike on this front.

Brookfield’s distributable earnings rose 79% year over year in the second quarter of 2024. The company expects annualized returns of at least 15% over the long term. Brookfield’s holdings generate steady cash flow, much of which is backed by inflation-indexed contracts.

Nike is facing some headwinds, including lower sales in its lifestyle business and declining customer traffic in the expanded China region. However, the company has successfully overcome these types of challenges in the past. Nike CEO John Donahoe acknowledged in June’s quarterly conference call that fiscal 2025 “will be a transition year,” but said the company is making “real progress in our turnaround.”

Are these stocks good choices for non-billionaire investors?

I predict that Ackman’s bets on Brookfield and Nike will pay off if he holds the stock long enough. But are these stocks good choices for non-billionaire investors? I don’t think they are bad choices, but there are better options in my opinion.

For example, instead of buying Brookfield, consider investing in one of its subsidiaries – Brookfield Infrastructure. If the Federal Reserve cuts interest rates, bond yields will fall and encourage income investors to seek higher-paying alternatives. Utility stocks like Brookfield Infrastructure should be direct beneficiaries of this trend.

Instead of buying Nike, investors might want to check out Simon Properties Group. Like Nike, the real estate investment trust (REIT) has exposure to the retail sector. Simon Properties Group owns premier dining, entertainment and shopping properties. It works well, recently increased its guidance for the whole year. A Fed rate cut could also provide a catalyst for REIT stocks.