In this article, we take a look at the top stock picks in Bill Ackman’s 2022 portfolio. You can skip our detailed analysis of hedge fund Pershing Square and go directly to Bill Ackman’s 2022 Portfolio: Top 4 Stock Picks.
Bill Ackman was born to Lawrence David Ackman, the chairperson of a New York based real estate financing firm. Bill Ackman grew up in Chappaqua, New York, and graduated from Harvard Business School with an MBA degree in 1992.
In the same year, He went on to lay the foundation of his first investment firm, called the Gotham Partners, with his fellow graduate David Berkowitz. The firm made small equity investments in public companies and by 1998, had $500 million in assets under management.
In 2004, Bill Ackman laid the foundation of Pershing Square Capital Management, the hedge fund he currently manages, with $54 million from his personal funds as well as from the former business associate, Leucadia National. Bill Ackman’s net worth is at $3 billion in 2022, according to Forbes.
Investment Philosophy
Bill Ackman has quite a history as an activist investor. He looked for value corporations with high potential but structural problems which he intended to solve in order to raise the stock price with the power granted to him through his equity holdings in those corporations.
He also shorted companies that he believed were involved in shady schemes as evident from his massive short against Herbalife Nutrition in 2012 and his research reports calling the company’s multilevel marketing business model a pyramid scheme.
Ackman’s investing style was both praised as well as criticized by Wall Street and it also put his fund under SEC scrutiny. His investment strategy led to high and low fluctuating returns compared to the benchmark index of S&P 500 throughout the years but the fund’s performance remained consistently weak in the years 2015-2018.
‘A Fool’s Errand’
The rough years did cause a rude awakening. Reuters reported Ackman telling investors he was taking his own activist advice and making changes to generate consistent returns. His investment strategy shifted to information driven methodical research and value investing with an emphasis on long-term potential, disregarding any short-term ups and downs.
“Short-term economic and market forecasting is largely a fool’s errand: we invest according to a strategy that makes the need to rely on short-term economic or market assessments largely irrelevant.”
– Bill Ackman
Bill Ackman has become a believer in buying blue chip securities at discounted rates in the short-term market dips to extract returns based on market’s eventual catch-up and the value-companies’ long-term growth.
The shift in strategy took place in 2018 and the fund returned 58% in 2019, beating the S&P 500 index by 29%.
Pershing Square
Pershing Square, the hedge fund managed by Bill Ackman, currently has a portfolio value of $10 billion and the fund’s biggest stake goes in the services sector followed by the financial sector based on Insider Monkey data. The stocks in Pershing Square portfolio have comparatively low commodity exposure and cyclical risk. The hedge fund also avoids marginal leverage to minimize risk to its portfolio.
Pershing Square outperformed S&P 500 by a huge margin in 2019 and 2020 with annual returns of 58% and 70%, respectively. Its 2021 returns were behind the S&P 500 index by just 1.8% but beat all other major market indices by significant margins, most prominent of them was HFRX Equity Hedge Index which it beat by 15%.
Some of the most prominent stocks in Bill Ackman’s Q1, 2022 portfolio include Hilton Worldwide Holdings Inc. (NYSE:HLT), Lowe’s Companies, Inc. (NYSE:LOW), and Chipotle Mexican Grill, Inc. (NYSE:CMG).
Our Methodology
For our list of the top 7 stock picks from Bill Ackman’s portfolio in Q1, 2022, we’d be using Insider Monkey data on the hedge fund and rank the stocks based on the fund’s stake for each stock. We’ve also covered the general hedge fund sentiment surrounding the given stocks in the first quarter of 2022.
With that said, here’s the top 7 stock picks from Bill Ackman’s 2022 portfolio.
Bill Ackman of Pershing Square
7. Canadian Pacific Railway Limited (NYSE:CP)
Pershing Square’s Stake Value: $243 million
Percentage of Pershing Square’s Portfolio: 2.33%
Number of Hedge Fund Holders: 41
Canadian Pacific Railway Limited (NYSE:CP) is based in Calgary, Canada and operates one of Canada’s two transcontinental railroad networks. Canadian Pacific Railway Limited (NYSE:CP) offers services and solutions in transportation and supply chains and boasts access to 8 major ports and various markets like coal, energy and food among others across the North American region.
There’s 41 hedge funds holding equity in Canadian Pacific Railway Limited (NYSE:CP) as of the first quarter of 2022. The number is down from 55 in the previous quarter as far as the hedge fund sentiment goes after the company marginally missed estimates on revenue and EPS in its Q1 earnings report.
However, the company’s percentage in Pershing Square’s portfolio increased by 0.46% in the Q1 of 2022 from the previous quarter as it acquired over 130,000 more shares. On the other hand, the leading stakeholder for the same quarter was TCI Fund Management managed by Chris Hohn with equity worth $4.6 billion.
Going two quarters back, here is what ClearBridge Investments had to say about Canadian Pacific Railway Limited (NYSE:CP) in Q3, 2021.
“The other major headwind to relative performance in the quarter was Canadian Pacific Railway. The stock has been a strong performer for the Strategy but negative sentiment around its bidding war for U.S. rail operator Kansas City Southern has weighed on the stock since late May. As a result, the cyclical uptick we expected from the company has been masked by the takeover. Indeed, we have been frustrated by the muted performance among Canadian Pacific and other recently added positions in our structural bucket of growth companies with more cyclical business models or that are undergoing a restructuring that should lead to a step change improvement in earnings.”
On May 19, Citi analyst Christian Wetherbee lowered the price target on Canadian Pacific to $81 from $84 and kept a Buy rating on the stock. The analyst downgraded 3 stocks in U.S. rails and lowered the estimates across the board for the three.
He sees short-run risk in a decelerating freight and economic environment and notes that rail valuations have actually improved compared to the market while earnings growth estimates are at their highest.
Wetherbee told investors in a research note that a more cautious approach is needed given “freight warning signs” and “persistent” service factors. He believes these issues can end up in a “delayed operational reaction to a true downturn.”
The equity of Canadian Pacific Railway Limited (NYSE:CP) makes up a very small percentage in Pershing Square’s portfolio relative to Hilton Worldwide Holdings Inc. (NYSE:HLT), Lowe’s Companies, Inc. (NYSE:LOW) and Chipotle Mexican Grill, Inc. (NYSE:CMG).
6. Domino’s Pizza, Inc. (NYSE:DPZ)
Pershing Square’s Stake Value: $841 million
Percentage of Pershing Square’s Portfolio: 8%
Number of Hedge Fund Holders: 27
Domino’s Pizza, Inc. (NYSE:DPZ) is one of the most prominent pizza restaurant chains in the world. It comes in at number 6 in the top 7 stock picks in Bill Ackman’s 2022 portfolio. It was founded in 1960 and is an American multinational pizza chain headquartered in Ann Arbor, Michigan.
Analysts are weighing in on the state of the fast food industry in the backdrop of the current economic situation. On May 6, Argus analyst John Staszak downgraded Domino’s Pizza, Inc. (NYSE:DPZ) to ‘Hold’ rating from ‘Buy’ without any price target.
Staszak addressed investors in a research note and said that Domino’s Pizza, Inc. (NYSE:DPZ) is being hurt this year due to driver shortages and higher costs for labor and ingredients. He lowered the company’s earnings estimates for the years 2022 and 2023, and says that ‘Hold’ rating is appropriate given the circumstances.
Pershing Square decreased the investment by almost 3% in Q1, 2022 from the previous quarter after a 29% decline in the stock value of Domino’s Pizza, Inc. (NYSE:DPZ). The fund’s 2021 annual letter said “ongoing slowdown in same store sales growth that began in the third quarter of 2021 can be attributed as the main reason for decline in Domino’s stock price.
Pershing Square still remains the leading stakeholder in Domino’s Pizza, Inc. (NYSE:DPZ) with over 2 million shares in the company. Here is what the fund’s investor letter in February, 2022 had to say about Domino’s Pizza, Inc. (NYSE:DPZ)
“Domino’s is a high-quality business with significant long-term growth potential led by a strong management team.
Global #1 QSR pizza brand with attractive business model
-Category leader with crown jewel digital and delivery infrastructure
-Long-term same-store sales growth of 7% in the U.S. and 5% internationally
-Exceptional unit economics underpin long runway for global store growth
-Optimal capital allocation enabled by near-100% franchised business model
Many levers in place for sustainable growth post-COVID
-Recent large price increases by competitors enhances DPZ’s customer value proposition and provides latent pricing power
-New products, peak advertising funds, and the eventual return of key promotions
-Carryout orders still below 2019 levels
Trades at a discounted valuation
-High certainty nature of the business, consistent capital allocation, and prospective long-term EPS growth in the mid- to high-teens.
DPZ’s share price including dividends increased 58% from our average cost at inception to December 31, 2021, and has decreased 22% year-to-date in 2022.”
5. Restaurant Brands International Inc. (NYSE:QSR)
Pershing Square’s Stake Value: $1.4 billion
Percentage of Pershing Square’s Portfolio: 13.4%
Number of Hedge Fund Holders: 23
Number 5 on the top 7 stock picks in Bill Ackman’s 2022 portfolio is Restaurant Brands International Inc. (NYSE:QSR). It is an American and Canadian global fast food holding corporation. It was formed through the merger of Burger King, an American fast food chain with Canadian restaurant chain, Tim Hortons. Restaurant Brands International Inc. (NYSE:QSR) has over 25,000 branches worldwide.
The hedge fund sentiment surrounding the stock didn’t see a significant difference during the switch to Q1, 2022 from the previous quarter with 23 hedge funds still bullish on Restaurant Brands International Inc. (NYSE:QSR) down from 24 in the last quarter of the previous year. Pershing Square is the leading stakeholder for Restaurant Brands International Inc. (NYSE:QSR) as well.
Here is what Pershing Square investor letter from Q4, 2021 says about Restaurant Brands International Inc. (NYSE:QSR)
“QSR is a high-quality business with significant long-term growth potential trading at a highly discounted valuation.
Comparable sales have recovered or are well on their way to recovery.
Tim Hortons Canada improved to a mid-single-digit decline during Q3 relative to 2019.
Burger King U.S. under new leadership and poised to make a recovery.
Burger King International and the Popeyes brand continue to grow well with strong same-store sales growth relative to 2019 levels. As underlying sales trends recover, QSR’s share price should more accurately reflect our view of its business fundamentals.
Management continuing to make investments for future growth.
Digital: G&A investment to modernize digital platforms and loyalty programs.
New Units: Return to historical mid-single-digit unit growth in 2021 and beyond.
Brand Acquisitions: Purchased Firehouse Subs for $1bn in December.
Remains cheap relative to intrinsic value and peers.
Trades at less than 18x our estimate of 2022 free cash flow per share.
The company began repurchasing shares in August.
As underlying sales trends recover, QSR’s share price should more accurately reflect our view of its business fundamentals. QSR’s share price increased 3% in 2021 and has decreased 7% year-to-date in 2022.”
While Restaurant Brands International Inc. (NYSE:QSR) has a significant investment for Pershing Square, it still falls behind Hilton Worldwide Holdings Inc. (NYSE:HLT), Lowe’s Companies, Inc. (NYSE:LOW) and Chipotle Mexican Grill, Inc. (NYSE:CMG).
Click to continue reading and see Bill Ackman’s 2022 Portfolio: Top 4 Stock Picks.
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Disclosure: none. Bill Ackman’s 2022 Portfolio: Top 7 Stock Picks is originally published on Insider Monkey.
