Bill Ackman, the billionaire manager of Pershing Square, has been in the news quite a bit in the last several months thanks to his public statements about his large short position in Herbalife. In December he accused the company of being a pyramid scheme; fellow billionaire and longtime Ackman rival Carl Icahn (see Icahn’s stock picks) began buying the stock after it fell in price, and slugged it out with Ackman himself on CNBC (though the angry conversation focused on their history rather than the merits of Herbalife as an investment). We track hundreds of quarterly 13F filings from hedge funds and other notable investors as part of our work developing investment strategies (we have found, for example, that the most popular small cap stocks among hedge funds generate an average excess return of 18 percentage points per year). We have gone through Ackman’s most recent filing compared to what Pershing Square has previously reported owning and here are three things which we noticed:
Mondelez. Pershing Square was buying Mondelez International Inc (NASDAQ:MDLZ) during the first quarter of 2013 and owned about 6 million shares at the end of March. Mondelez International Inc (NASDAQ:MDLZ) was formed from the breakup of Kraft, with the North American grocery business currently operating under the name Kraft Foods Group. The company’s financial statements have shown that it trades at 20 times trailing earnings, and given the stability of its business that does seem a bit high from a value perspective (though 20 is about where many other large food stocks are trading). There has been some speculation that Mondelez International Inc (NASDAQ:MDLZ) could merge with giant beverage and snack foods company Pepsico, though buying a stock primarily based on rumors such as these is likely not a smart move.
Consumer stocks. Adding Mondelez International Inc (NASDAQ:MDLZ) to his portfolio only further increases Ackman’s emphasis on consumer stocks in his long portfolio. His second and third largest holdings, respectively, are The Procter & Gamble Company (NYSE:PG) and General Growth Properties Inc (NYSE:GGP), with other names including Beam and Burger King. Procter & Gamble is a classic defensive stock, with a beta of 0.3 and a dividend yield of 3% at current prices, though the hunt for stocks meeting this criteria has resulted in it carrying earnings multiples in the high teens despite its business (similarly to that of Mondelez) not showing much growth potential. General Growth, which is a retail-focused real estate investment trust, pays a fairly low yield for a REIT at 2.1% (real estate investment trusts receive favorable tax treatment conditional on distributing a large share of taxable income to shareholders, often resulting in high yields). Note that while Pershing Square likes a large number of consumer stocks, it’s not necessarily a reflection of bullishness- many of these companies are consumer staples.
We do find Pershing Square’s focus on consumer stocks relative to, say, financials or tech companies worth noting. However, we’re not sure that General Growth, Procter & Gamble, or Mondelez International Inc (NASDAQ:MDLZ) are actually good values at this time; it is true that buying Mondelez would result in upside in the event of a merger but that seems like too speculative a move for us. As for Matson (which, as a container ship company, could also be read as tied to consumer demand), it’s probably best to wait for another quarter or two of results to see how earnings numbers unfold, as the current rate of revenue growth doesn’t seem high enough to justify the current valuation.
Disclosure: I own no shares of any stocks mentioned in this article.
