A Look at Bill Ackman’s Top Bets for Q4

As an activist, Bill Ackman prefers to hold a concentrated equity portfolio that allows him to focus on his targets and work towards maximizing their shareholder value. Over the long-run, activists generate higher returns than their passive peers, which makes them the best investors to emulate. Last year, Ackman’s Pershing Square produced gains of around 40%, topping the list of the best-performing hedge funds. This year, the fund has been less successful, plunging by around 12% in the first ten months of the year on the back of its position in Valeant Pharmaceuticals Intl Inc (NYSE:VRX), which amasses a quarter of its equity portfolio, and whose stock has lost 50% since the beginning of the year. Another one of Ackman’s top picks, Canadian Pacific Railway Limited (USA) (NYSE:CP), has plunged by 28%. Overall, Pershing’s top five holdings amassed over 83% of the fund’s equity portfolio, which was valued at $13.95 billion at the end of September. Let’s take a closer look at these companies.

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Pershing Square’s stake in Valeant Pharmaceuticals Intl Inc (NYSE:VRX) has put a lot of pressure on its returns in the last couple of months. The stock has lost over 60% since the beginning of July as investors started questioning some of the company’s practices on the back of concerns related to drug-pricing and distribution policies. Pershing owns 19.47 million shares of Valeant Pharmaceuticals Intl Inc (NYSE:VRX) worth $3.47 billion as of the end of the third quarter. The number of shares remained unchanged, but their aggregate value slid from $4.33 billion reported as of the end of June. Jeff Ubben’s ValueAct also owns a substantial stake in Valeant Pharmaceuticals Intl Inc (NYSE:VRX), which contains 14.99 million shares as of September 30.

In Air Products & Chemicals, Inc. (NYSE:APD), Ackman also left his position unchanged at 20.55 million shares, worth $2.62 billion. Holding almost 10% of the company, Pershing Square is the largest shareholder of Air Products & Chemicals. In September, Air Products announced plans to spin-off its materials technologies business into a separate publicly-traded company. Ackman had previously tried to pursue the company to separate some of its businesses. Air Products & Chemicals, Inc. (NYSE:APD)’s stock has inched up by 2% so far this year, but it is over 70% in the green over the last three years. Another investor bullish on Air Products & Chemicals, Inc. (NYSE:APD) is Andreas Halvorsen‘s Viking Global, which owns 5.92 million shares according to its third quarter 13F filing.

As mentioned, Canadian Pacific Railway Limited (USA) (NYSE:CP)‘s stock has also affected Pershing’s returns, dropping by more than 28% so far this year amid a decline in demand for railway transportation on the back of weak oil and commodity prices. Canadian Pacific is another one of Ackman’s long-term bets. Back in May 2012, the investor won a proxy vote and managed to reshuffle the company’s portfolio. Since then, the stock has surged by more than 80%. At a forward P/E of 15.6, Canadian Pacific Railway Limited (USA) (NYSE:CP)’s stock is in line with the S&P 500, but analysts see more potential for the stock, as they currently have a consensus price target of $208.60 per share on it. Daniel S. Och‘s OZ Management is another shareholder of Canadian Pacific Railway Limited (USA) (NYSE:CP), holding 3.80 million shares.

On the next page, we are going to take a look at Mondelez International Inc (NASDAQ:MDLZ), which represents Ackman’s latest new pick, as well as vet drug company Zoetis Inc (NYSE:ZTS).

In Mondelez International Inc (NASDAQ:MDLZ), Pershing disclosed a $1.82 billion stake that amassed 43.37 million shares. In August, Ackman reported a new 7.5% stake in the company that contained 120.27 million shares, so from what it looks like, the investor decided to trim his exposure to the company shortly afterwards. Mondelez International Inc (NASDAQ:MDLZ)’s stock is down by around 3% since Pershing reported its position, but Ackman is betting on the company’s long-term run, saying in an investor letter that Mondelez has a lot of room to grow and to increase its margins (see article). Nelson Peltz’s Trian Partners is also bullish on Mondelez International Inc (NASDAQ:MDLZ), owning 48.03 million shares.

Last but not least, in Zoetis Inc (NYSE:ZTS), Pershing owns 41.82 million shares worth $1.72 billion. Zoetis’ stock lost over 14% in the third quarter amid an overall market decline that was particularly sharp in the healthcare sector. However, year-to-date the stock is still 6% in the green. Zoetis Inc (NYSE:ZTS) is one of the largest animal health companies in the world, which should give it a clear advantage in front of its competitors. The company has consistently outperformed the estimates in its financial statements for the past several quarters and most analysts are bullish on its stock, assigning a consensus ‘Buy’ rating to it. A couple of weeks ago, Piper Jaffray and BMO Capital Markets reiterated their ‘Overweight’ and ‘Outperform’ ratings and raised their price targets on it to $58 and $54, respectively. Cliff Asness’ AQR Capital Management also sees value in Zoetis Inc (NYSE:ZTS), adding 2.13 million shares to its stake, reporting ownership of 5.07 million shares as of September 30.

Disclosure: None