The Procter & Gamble Company (PG), Canadian Pacific Railway Limited (USA) (CP): Besides Herbalife Ltd. (HLF), What Else Do You Need To Know About Bill Ackman?

One of the “hedgies” we track is Pershing Square managed by Bill Ackman, and it has recently filed its 13F form with the SEC. Disclosing its first quarter stock positions, Ackman has made a ton of noteworthy moves, but we’ll keep it to his top five. Most readers probably know this money manager from the Herbalife Ltd. (NYSE:HLF) saga, but there’s more to him than that. Let’s find out what he likes in the equity markets, because it’s worth monitoring the secrets of hedge fund piggybacking.

Canadian Pacific

Ackman’s largest equity holding is in Canadian Pacific Railway Limited (USA) (NYSE:CP), a $3.2 billion stake, up from about $2.5 billion at the end of 2012. Up around 35% in 2013, Canadian Pacific was the subject of an Ackman-led reorganization last year, the railroad operator now has Hunter Harrison at the helm, and investors have rewarded shares nicely since he was appointed to the CEO post.

Paid nearly $50 million in his first six months, Harrison has changed the very culture of Canadian Pacific Railway Limited (USA) (NYSE:CP), primarily by cost cutting tactics. According to The Spec, the CEO has cut nearly 4,000 jobs, closed unprofitable tracks, sold equipment, and more. Ackman’s primary argument—that there was potential for much higher profitability if the right leaders were in place—has proven correct so far, as Canadian Pacific Railway Limited (USA) (NYSE:CP) beat the Street’s earnings estimates by 2% in its latest report. At 17 times forward EPS, there’s still value here moving forward, and it’s likely that Ackman and Harrison’s renovations aren’t finished just yet.

Procter & Gamble

The Procter & Gamble Company (NYSE:PG) is the next on the list, being represented in the equity portfolio of Ackman’s hedge fund by 27,946,892 shares, also flat from the previous round of 13F filings. The value of the stake advanced to $2.2 billion, from $1.9 billion, and at a forward P/E of 18.5x, there’s not an overvaluation present. Procter & Gamble’s sheer dominance in the personal products industry warrants any investor’s attention—we don’t have to tell you that—but one thing that Ackman may be bullish on another CEO.

After CEO Robert McDonald looked like the answer in The Procter & Gamble Company (NYSE:PG)’s latest earnings call, his retirement last month—and the company’s subsequent re-hiring of former CEO A.G. Lafley—can be viewed as a positive in some shareholders’ eyes. Though it’s too early to tell what Lafley’s latest stint as head honcho will bring, multiple reports are saying that Procter & Gamble is planning on splitting itself into four “sectors,” with each sector having its own president.

Although it’s too early to predict the effects that this move might have on The Procter & Gamble Company (NYSE:PG)’s bottom line without knowing more details, it’s worth noting that Wall Street’s average price target predicts another 10-11% upside from current levels. Like Canadian Pacific Railway Limited (USA) (NYSE:CP), this is a company with structural tweaks worth paying attention to.

General Growth

Pershing Square also disclosed ownership of 74,733,712 shares of General Growth Properties Inc (NYSE:GGP), worth $1.5 billion. This position remained unchanged from the end of December in terms of both price and holding value. The stock of the real estate investment trust (REIT) shows a year-to-date return above 15% in an industry that has returned close to 19% in 2013.

We’ve written about General Growth Properties plenty of times before, but the company’s bullish thesis boils down to a few factors: (a) continuing value recovery after emergence from Chapter 11, (b) sales of underperforming assets, (c) the ever-present rumor of a deal with Simon Property Group, Inc (NYSE:SPG), (d) its ability to boost its occupancy rate even further than current levels, with most expectations of 96-97% by 2014, (e) steady free cash flow, and (f) a fairly wide moat in the mall space.

General Growth Properties Inc (NYSE:GGP) also grew its first quarter FFO by more than 13%, while raising its full-year guidance to $1.11-$1.15 in FFO per share versus analysts’ consensus mark near $1.10.

The best of the rest

BEAM Inc (NYSE:BEAM) and Burger King Worldwide Inc (NYSE:BKW) are the fourth and fifth most valuable equity holdings in Ackman’s 13F, respectively, and both represent momentum—rather than value—plays moving forward. Each stock is up double-digit percentage points year-to-date, and while they aren’t particularly cheap, both Beam and Burger King sport booming growth estimates from Wall Street. The sell-side expects BEAM Inc (NYSE:BEAM) to generate EPS growth in excess of 190% this year, while Burger King Worldwide Inc (NYSE:BKW)’s forecast is near 175%. Both stocks sport PEG ratios in excess of 2.0, but each gives Ackman a solid bet on consumer discretionary spending and an economic recovery.

Bottom Line

Looking through Bill Ackman’s top five equity positions, it’s fairly easy to notice that the mega-investor has a penchant for value-creation through restructuring, whether it’s with Canadian Pacific Railway Limited (USA) (NYSE:CP), The Procter & Gamble Company (NYSE:PG) or the REIT, General Growth. Beam and Burger King represent more conventional momentum plays, but it’s important to watch each member of this “fab five” going forward; learn more about hedge funds here.

Disclosure: none