We recently compiled a list of the Bill Ackman Stock Portfolio: 8 Top Stock Picks. In this article, we are going to take a look at where Canadian Pacific Kansas City Limited (NYSE:CP) stands against the other the Bill Ackman’s Stock Portfolio.

Bill Ackman is an investor whose portfolio is well-positioned to benefit from the economic environment’s improvement as interest rates trend down. In addition to being vocal about investment opportunities especially when there is a high risk reward, Ackman also does not shy away from giving his opinion on what he thinks is wrong. In September he took on the Brazilian Supreme Court justice on its decision to block Elon Musk’s social networking app. The billionaire investor reiterated that the decision could end up driving away investors and harming the country.

The “illegal shut down of X and account freeze at Starlink put Brazil on a rapid path to becoming an uninvestable market,” Ackman said in a post on X. “China committed similar acts leading to capital flight and a collapse in valuations. The same will happen to Brazil unless they quickly retreat from these illegal acts.”

It is not the first time that the legendary investor has echoed his opinion having already withheld a huge donation from Harvard University because of purported anti-Semitism. He also played a role in bringing down President Claudine Gay.

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Can Geopolitical Tensions and Inflation Impact Ackman’s Portfolio?

Ackman stands out among the top echelons because he focuses on high-quality large-cap companies with limited downside potential. Over the past five years, the billionaire investor has generated a 31% annualized return, affirming why he is one of the most revered investors on Wall Street.

The fundamental value investor has made a name for himself in investing and pushing for strategic changes in companies in a bid to increase shareholder value. Ackman’s investment strategy focuses on holding a limited number of companies, mostly eight to 12, for the long term in his portfolio.

As one of the sharpest investors on Wall Street,  Bill Ackman’s stock portfolio is well-positioned to benefit from an improving investment environment. The US Federal Reserve cutting interest rate by 50 basis points is increasingly emerging as a key catalyst poised to push the overall market higher.

While the S&P 500 was already up by more than 15% before the interest rate cut, it is currently flirting with record highs with more than 20% gains. The rally came on growing optimism that the lower interest rate environment would support the US economy, which was struggling, as depicted by weakness in the labor market and slow manufacturing.

While an accommodative interest rate environment is a must-welcome factor that could drive Ackman’s portfolio higher, a combination of regional conflict in the Middle East and rising inflation could curtail the gains. According to Stephen Roach, a senior fellow at Yale Law School’s Paul Tsai China Center, a completely blown conflict in the Middle East could trigger inflationary risks even as central banks start easing monetary policy.

Roach expects the markets to whipsaw back and forth amid heightened volatility in response to the geopolitical tensions. Kelvin Tay, regional chief investment officer at UBS Global Wealth Management, has already warned that Israel’s response to Iran’s attack could throw the Fed’s 50 basis point rate cut off track.

Bill Ackman’s portfolio could feel the effects of escalating geopolitical tensions in the Middle East on the investment environment turning jittery.  The portfolio suffered one of its biggest losses in July as it erased most of its 2024 gains. The portfolio lost 4.7% in the month, fueled by losses in one of Ackman’s investments in a large record label.

The string of negative losses persisted, with Ackman struggling to generate interest in his plan for one of his investment firms in the market. After failing to garner enough investor interest, the planned launch of Pershing Square USA (PSUS) IPO, which Bill Ackman once claimed could raise $25 billion, was canceled.

Ackman confirmed the withdrawal, reiterating that they will revisit the IPO once they are ready to launch a revised transaction. The pullback comes on investors raising concerns about the proposed fund’s structure and where he knew cash would be invested given that the market is at an all-time high with valuations getting out of hand. With that, let’s dig deeper into Bill Ackman’s stock portfolio.

Our Methodology

We sifted through Pershing Square’s Q2 2024 13F filings and picked the hedge fund’s top 8 stock picks. The stocks are ranked in ascending order of Pershing Square’s stake in them, as of June 30. We have also mentioned the hedge fund sentiment around each stock.

At Insider Monkey, we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).

Canadian Pacific Kansas City Limited (NYSE:CP)

Number of Hedge Fund Holders as of Q2: 44

Pershing Square’s Equity Stake: $1.18 Billion

Canadian Pacific Kansas City Limited (NYSE:CP) is one of Bill Ackman’s investments in the industrial sector, offering exposure to the railroad business. Ackman has held stakes in the company since 2010 and upped stakes in 2021 by reiterating that the railroad remains the cheapest and most viable way of transporting heavy freight in North America.

Historically, the Canadian Pacific Kansas City Limited (NYSE:CP) was the smaller of the two main railroads in Canada. The company’s acquisition of Kansas City Southern in 2023 brought about this change. From a deep-water port in Mexico to a vast network spanning the spine of North America, the deal gave Canadian Pacific immense reach. Together with its current east-west track across Canada, this network makes freight move quickly across the continent possible.

Canadian Pacific Kansas City Limited (NYSE:CP) has made better use of its assets and provided cash flow throughout market cycles thanks to its precise railroading operating model and focused, disciplined execution approach. Consequently, it saw a 14% year-over-year increase in sales to $3.6 billion in the second quarter of 2024. Its operating ratio at the end of the June quarter was a healthy 64%, and its adjusted earnings per share increased by 27% to $1.05. In contrast, its Q2 operating expenses increased by a mere 5% yearly to $2.33 billion.

Since analysts predict earnings to grow by 13% annually over the next five years, Canadian Pacific Kansas City Limited (NYSE:CP) stock is reasonable at 26 times forward earnings. Additionally, it comes with a 0.67% dividend yield, ideal for generating passive income.

According to Insider Monkey’s second-quarter database, 44 hedge funds were long Canadian Pacific Kansas City Limited (NYSE:CP), compared to 48 funds in the prior quarter.

Here is what Pershing Square Holdings said about Canadian Pacific Kansas City Limited (NYSE:CP) in its fourth quarter 2023 investor letter:

“Canadian Pacific Kansas City Limited (NYSE:CP) is a high-quality, inflation-protected, unique North American railroad that operates in an oligopolistic industry with significant barriers to entry. In 2023, Canadian Pacific made history when it closed the acquisition of Kansas City Southern and renamed the combined company Canadian Pacific Kansas City, creating the only railroad with a direct route connecting Canada, the United States, and Mexico. This transformative acquisition will generate substantial long-term shareholder value as well as create competitive options for shippers and reduce greenhouse gas emissions by converting trucks to rail transportation.

In the 11 months since the acquisition closed, CPKC has already realized $350 million of run[1]rate revenue synergies, exceeding management’s expectations despite a soft demand environment. Broad-based contract wins across end markets, including chemicals, automotive, and cross-border intermodal, demonstrate the attractiveness of the company’s unique service product.

CPKC is also ahead of the plan on realizing cost synergies as the team successfully integrates the two networks after overcoming some operational challenges in Mexico. We believe CPKC is well on its way to achieving management’s goal to more than double the company’s earnings per share by 2028 while holding capital expenditures at current levels. We continue to believe that CPKC’s one-of-a-kind network and superb team are well positioned to deliver profitable long-term growth in the coming years.”

Overall CP ranks 6th on our list of Bill Ackman Stock Portfolio: 8 Top Stock Picks. While we acknowledge the potential of CP as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than CP, check out our report about the cheapest AI stock.

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Disclosure: None. This article is originally published at Insider Monkey.