We recently published a list of Bill Ackman’s Stock Portfolio: Top 9 Stocks to Buy. In this article, we are going to take a look at where Chipotle Mexican Grill, Inc. (NYSE:CMG) stands against other stocks to buy in Bill Ackman’s portfolio.
William Albert Ackman, more commonly known as Bill Ackman, is the founder and CEO of Pershing Square Capital Management, a hedge fund management company. Famous for his concentrated portfolio, with stakes in only 8 to 12 stocks at a time, Bill Ackman’s recent portfolio modification has revealed that 47% of his hedge fund is invested in just three stocks.
Analysis of his portfolio reveals that Bill Ackman invests in stocks that are mispriced relative to the long-term value of the company. Historically, this philosophy has served him well since Pershing Square’s total value was just under $13 billion by the end of the third quarter of 2024 with only 9 stocks.
A longtime supporter of the Trump administration, Ackman has been vocal about the benefits that the newly elected president will bring to the investment front. In addition to the prospects of deregulation and corporate tax cuts that could allow for stock prices to rise and have made many investors bullish on the market, Bill Ackman has more vested interests in the Trump office. Pershing has a roughly 10% stake in the common shares of the government-sponsored entities. He took to X to discuss his hypothesis about how Donald Trump could help these giants exit government conservatorship and be recapitalized, leading to substantial shareholder gains for Pershing Square.
In early 2024, Ackman launched a U.S. closed-ended fund called Pershing Square USA, Ltd., and talked about it during his 2024 letter to investors:
“The launch of PSUS is one of a number of strategic initiatives we plan to undertake which we believe will increase the long term sustainability of Pershing Square Capital Management, L.P., (“PSCM” or the “Investment Manager”), and will benefit PSH by reducing the performance fees that it pays. To this end, in June, we sold a 10% interest in PSCM, the proceeds of which will be used to anchor new fund launches including PSUS.”
However, Pershing Square officially canceled its IPO just one day after filing with the SEC due to a $2 billion listing as opposed to its original target valuation of $25 billion. Finally, while announcing the IPO cancellation on X, Ackman wrote “We will report back once we are ready to launch a revised transaction,” hinting at the possible launch of PSUS without listing shares on a stock exchange.
Our Methodology
The stocks discussed below were picked from Pershing Square’s Q3 2024 13F filings. They are compiled in the ascending order of Pershing Square’s stake in them as of September 30, 2024. In order to assist readers with more perspective, we have included the hedge fund sentiment regarding each stock using data from over 900 hedge funds tracked by Insider Monkey in the third quarter of 2024.
Why are we interested in 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 Q3: 69
Pershing Square’s Equity Stake: $1.66 Billion
Chipotle Mexican Grill, Inc. (NYSE:CMG) is one of the two investments that Bill Ackman has in the restaurant sector. Ackman has held stakes in the company since 2016 and currently holds roughly 28.82 million shares that make up 12.85% of the entire portfolio.
As the name suggests, the company is an American multinational chain of fast-casual restaurants that specialize in Mexican cuisine, especially bowls, tacos, and burritos made to order in front of the customer. Chipotle Mexican Grill, Inc. (NYSE:CMG) is popular with the young and old alike as it responds well to local tastes and popular culture. Recently, it announced that it would give away 50,000 free entrees during the Super Bowl and instantly became a fan favorite with football enthusiasts.
Restaurants across the United States have been struggling with revenue growth due to rising menu prices in the past year. Consequently, Chipotle Mexican Grill, Inc. (NYSE:CMG) missed market expectations for same-store sales growth in Q3 but managed to maintain its growth target for annual comparable restaurant sales. Consequently, it missed the consensus estimates by 18% and reported revenue of $2.79 billion instead of the expected $2.82 billion in the third quarter of 2024. However, it managed to beat the estimated EPS of $0.25 by 6.25 percentage points and reported earnings of $0.27.
Months after the unexpected exit of former CEO Brian Niccol from Chipotle Mexican Grill, Inc. (NYSE:CMG) to take the top job in Starbucks in August, the interim CEO Scott Boatwright was confirmed as the permanent CEO in early November. Boatwright has been brought in at a challenging time when restaurants across the country struggle with falling consumer demand due to higher menu prices.
ClearBridge Growth Strategy stated the following regarding Chipotle Mexican Grill, Inc. (NYSE:CMG) in its Q4 2024 investor letter:
“We also initiated a position in fast casual restaurant chain Chipotle Mexican Grill, Inc. (NYSE:CMG). The recent pullback in shares related to a moderation in industry-wide restaurant sales and CEO Brian Niccol’s August departure created an attractive entry point into a company with industry-leading unit economics in a still underpenetrated market. Chipotle plans to double its store footprint over time while executing initiatives to increase volume growth through technology enhancements, reduced mobile order friction and higher production during peak hours. Better throughput, technological integration and improved mix should help to drive continued margin expansion. Chipotle further diversifies the portfolio, adding to consumer discretionary where we have historically had less exposure.”
Overall, CMG ranks 3rd on our list of stocks to buy in Bill Ackman’s portfolio. While we acknowledge the potential for CMG as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than CMG but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.