Lately, the billionaire activist investor, Bill Ackman, has been making some significant changes to his investment portfolio.
Ackman has a strategy that revolves around picking a small number of companies, allowing him to focus deeply on each. Through his hedge fund, Pershing Square Capital, he zeroes in on high-quality businesses whose stocks, in his view, don’t reflect their true worth. As a substantial shareholder, he’s then able to wield influence to steer management in ways that unlock value for everyone involved.
This activist approach requires concentrating heavily on a few key investments. Ackman aims to acquire enough of a stake in a company to ensure his voice is heard, balancing his engagements so each receives the attention it needs. Currently, over 45% of Pershing Square’s $13.4 billion assets are funneled into just three companies.
Ackman’s knack for long-term value spotting makes these companies prime candidates for those looking to enrich their personal portfolios.
### 1. Alphabet (16.5%)
Amidst growing concerns about the impact of artificial intelligence on Google’s core business, Ackman saw an opportunity. With the meteoric rise of platforms like ChatGPT raising the alarm among investors, Alphabet’s trading seemed shaky. Yet, Ackman believes the fears are overblown.
As of now, he has a substantial $2.2 billion invested in Alphabet’s Class A and Class C shares. Although he made some slight reductions last quarter, the stock’s strong performance has solidified its spot at the top of his holdings.
Indeed, Alphabet has justified its stellar market run. While the AI chatbots appear to pose a competitive threat, Google has integrated AI into its search process effectively, enhancing user engagement. Products like AI Overview have reportedly improved satisfaction, offering AI-generated responses that users find valuable.
Other innovations such as Circle to Search and Google Lens are also increasing engagement, particularly in profitable areas like shopping. AI involvement helped boost the “Google Search and other” segment by 12% last quarter.
Google Cloud, a key revenue driver, saw a 35% rise last quarter as customers gravitated towards their AI infrastructure. This upsurge in revenue is translating into profits, marking a leap from a loss of $440 million in the same quarter last year to a profit of $1.95 billion.
Despite potential regulatory hurdles, Alphabet’s stock is alluringly priced. Even near its peak, shares trade at just over 21 times the analysts’ earnings estimates for 2025—a great deal for a company of Alphabet’s caliber. For those interested in AI-driven companies, Alphabet might be a perfect match.
### 2. Brookfield (14.4%)
Agile investor Ackman began accumulating shares in alternative asset management giant Brookfield earlier this year, cementing his stake in the third quarter. Presently, his holdings in this Canadian firm stand at approximately $1.9 billion.
Brookfield’s business spans several sectors, including infrastructure, renewable energy, business services, real estate, and insurance. The company is known for strategic moves that render its shares more attractive to investors.
A notable decision was in 2020 when Brookfield transformed its Brookfield Renewable Partners subsidiary into a corporation, appealing to institutional investors restricted from investing in partnerships.
Last year saw Brookfield spinning off its asset management arm, though it retains a majority 73% stake. It has since relocated its headquarters to New York, and Brookfield Asset Management expects its private stake to become publicly traded, potentially qualifying it for inclusion in U.S. stock indexes—a move that could attract index funds and bolster share demand. With Pershing Square now ranking as the eighth-largest shareholder, it’s interesting to speculate whether Ackman influenced these changes.
Brookfield’s future looks robust, with management forecasting over 20% annual free cash flow growth over the next five years. Projected to generate $47 billion in free cash flow, the company plans to reinvest $36 billion while rewarding shareholders through dividends and buybacks.
The stock has surged, with gains exceeding 40% since mid-year. Despite this, shares are still trading at just over 15 times the distributable earnings of the past year—a bargain, considering management values the shares at 23 times distributable earnings. Investors looking for exposure to alternative assets may find Brookfield appealingly undervalued.
### 3. Hilton (14%)
Ackman’s history with Hilton dates back to 2016, when a brief but profitable stint saw him sell after a price surge. He seized another opportunity in 2018 and increased his stake significantly during the 2020 market dip spurred by the pandemic.
Ackman is no stranger to profit-taking with Hilton, as evidenced by his recent sale of 18% of Pershing Square’s holdings, keeping nearly $1.9 billion invested today.
His thesis for Hilton remains intact: the brand’s expansive and growing network provides substantial value to both guests and hotel owners, fortifying the company’s market position. In 2020, he noted the pandemic might spur independent hotels to affiliate with global brands like Hilton, supporting long-term growth.
Since 2019, Hilton has expanded its properties by 36%, now boasting over 8,300 locations. This growth attracts more members to its Hilton Honors program, enhancing consumer loyalty and creating a robust network effect.
Currently, Hilton’s stock is trading at an enterprise value-to-EBITDA ratio of about 30, a lofty valuation reminiscent of the pandemic era’s inflated figures. While Ackman is cashing in on some gains, his substantial investment signals long-term confidence in Hilton. However, with the stock’s current valuation, investors might consider looking elsewhere for new opportunities.
