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 Chipotle Mexican Grill, Inc. (NYSE:CMG) 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).

Chipotle Mexican Grill, Inc. (NYSE:CMG)

Number of Hedge Fund Holders as of Q2: 68

Pershing Square’s Equity Stake: $1.81 Billion

Chipotle Mexican Grill, Inc. (NYSE:CMG) has been one of the biggest holdings in Bill Ackman’s stock portfolio since 2016 as the legendary investor acquired stakes, taking advantage of a foodborne illness that pushed the stock down by 50%. He currently owns 28.82 million shares in the company.

While the stock has pulled back significantly from its 52-week high, it remains a solid pick in the restaurant sector. The company has made a name in the growing niche between cheaper fast-food chains and pricier restaurants.

By improving its mobile app, growing its rewards program, and introducing new grab-and-go ordering options, Chipotle Mexican Grill, Inc. (NYSE:CMG) has hit new levels of revenue and earnings growth. Chipotle gathered more customer data using analytics tools, allowing it to improve the menu and run more successful marketing campaigns.

In addition, it stopped offering steep discounts and promotions initially intended to win back customers following its outbreaks of foodborne illness. Instead, it invested its money in new digital, social media, and television advertising campaigns. Because of this, Chipotle Mexican Grill, Inc. (NYSE:CMG)’s comps growth has been positive over the last six years, and it has continuously increased its operating margins at the restaurant level while opening new locations. Additionally, it has raised prices frequently and added new drive-thru Chipotles to accommodate more customers and counteract the inflationary headwinds of the previous two years.

Chipotle Mexican Grill, Inc. (NYSE:CMG) defies the trend of most retail businesses operating on extremely narrow profit margins, particularly restaurants. The operating margin was a fantastic 15.8% last year. Profitability has been aided by pricing power and careful expense management. Even though the stock trades at a premium with a price-to-earnings multiple of 42, the company is expected to grow at an impressive rate.

As of the end of the second quarter of 2024, 68 hedge funds had stakes in Chipotle Mexican Grill, Inc. (NYSE:CMG). Bill Ackman’s Pershing Square is the largest stakeholder of the company, with 28.82 million shares worth $1.81 billion.

Here is what Pershing Square Holdings said about Chipotle Mexican Grill, Inc. (NYSE:CMG) in its Q2 2024 investor letter:

“On August 13th, Chipotle Mexican Grill, Inc. (NYSE:CMG) announced that CEO Brian Niccol would be leaving the company to become the CEO of Starbucks. Brian has led a superb turnaround at Chipotle, which has put the company firmly on the path of sustainable long-term growth. While we are disappointed to see Brian go, one of the measures of a great CEO is the company that he leaves behind. Brian has built an extraordinary team at Chipotle that we expect will not lose a step in his departure. We are grateful to Brian for the extraordinary value he has created for CMG shareholders and Pershing Square.

Chipotle delivered outstanding results in the first half of 2024 as the brand’s industry-leading value proposition of fresh food, customization, and convenience at fair prices continues to resonate with customers. During the second quarter, same-store sales grew an impressive 11%, or 55% from 2019 levels. Successful marketing, including the return of the fan-favorite Chicken Al Pastor limited time offering, and faster throughput drove transaction growth of over 8%, with gains across all income cohorts. Although sales growth has moderated in the summer amid a broader deceleration in the restaurant industry, Chipotle continues to gain share. The launch of Smoked Brisket for a limited time starting in September, one of the company’s most requested menu items, should further improve trends….” (Click here to read the full text)

Overall CMG ranks 2nd on our list of Bill Ackman Stock Portfolio: 8 Top Stock Picks. While we acknowledge the potential of CMG 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 CMG, check out our report about the cheapest AI stock.

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