Bill Ackman is one of the most closely followed portfolio managers in the world. His most recent effort to bring his portfolio management skills to everyday investors involved acquiring control of Howard Hughes Holdings. Ackman's hedge fund, Pershing Square Capital, already owns about 37% of the company's outstanding shares.
But everyday investors don't have to wait around for a complicated acquisition to go through, if it ever does. They can invest in Ackman's best ideas right now by simply following his public disclosures for Pershing Square. The hedge fund's $14.8 billion portfolio is heavily concentrated in just a handful of companies with three accounting for 43% of its value.
Here are Ackman's favorite investments right now.
1. Uber (15.6%)
Uber Technologies (NYSE: UBER) is the newest addition to Pershing Square's portfolio, and it's a big bet by Ackman. He disclosed a purchase of 30.3 million shares of the ride-sharing company in early February. Those shares are worth approximately $2.3 billion as of this writing.
In his annual shareholder presentation, Ackman pointed to Uber's network effect as the biggest reason he's bullish on the company. Indeed, Uber is the largest ride-sharing network outside of China. It's already leveraged that network of drivers and customers to build Uber Eats and a broader delivery service, which now accounts for half of its volume.
Uber's position as the biggest demand aggregator shields it from the potential disruption of autonomous vehicles (AVs). Uber positioned itself as an essential partner for AV companies looking to build a robotaxi service. Since Uber can aggregate demand and supplement AV supply with human drivers, it can ensure high utilization rates for AV companies. AV companies going it alone will have a majority of their fleet not in use throughout the day.
As such, Ackman sees management's guidance for 30% to 40% annual earnings before interest, taxes, depreciation, and amortization (EBITDA) growth over the next few years as achievable. Management also called for 90%-plus average annual free-cash-flow growth over the next three years at the start of 2024. Free cash flow grew 122% last year.
With such strong growth ahead of it, Uber's forward P/E ratio of around 31 as of this writing looks like a great value.
2. Alphabet (13.8%)
Ackman scooped up a sizable position in Alphabet (NASDAQ: GOOG) (NASDAQ: GOOGL) in early 2023 amid fears that generative artificial intelligence (AI) start-ups would disrupt its Search product. The stock climbed 40% by the time Ackman wrote his midyear update to Pershing Square shareholders in June. Even then, he said the stock still looked attractive. And the price has moved another 48% higher since. Pershing Square's stake in Alphabet is now worth about $2 billion.
What Ackman liked about Alphabet in 2023 is just as true today, and investors have even more reasons to think artificial intelligence is a tailwind for the business rather than a threat.
Ackman pointed to the potential for AI to improve the search product and increase ad efficacy. To that end, Google has seen tremendous success with its AI Overview product, which generates a summary of the top search results based on a query. Monetization of that product reached parity with regular searches by the end of 2024. Google has also seen increased Search engagement with products like Google Lens and Circle to Search, which often focus on high-value product and shopping searches.
Meanwhile, Google Cloud has been a big beneficiary of AI spending from developers. Ackman pointed out 70% of generative AI start-up unicorns were Google Cloud customers in mid-2023. And those customers have spent along with new customers, accelerating Google Cloud revenue growth. Google Cloud operating margin expanded to 14% last year, but there's a lot of room for that to improve based on competitors' margins.
With Alphabet shares trading for less than 20 times forward earnings, the stock remains a great value. While that's up from early last year, it's still below the stock's valuation when Ackman wrote his update for shareholders in 2023, and that's despite a 48% increase in the stock price. In other words, Alphabet's earned every penny of the stock increase in that time, and its outlook for growth remains strong.
3. Brookfield Corp. (13.7%)
Ackman has bought shares of the Toronto issued Brookfield Corp. (NYSE: BN) shares for three consecutive quarters, building a sizable position in the alternative asset manager. Pershing Square's 34.9 million shares are worth just over $2 billion as of this writing.
Brookfield strategically spun off and restructured several subsidiaries over the last few years in an effort to unlock shareholder value. Investors could buy Brookfield Renewable, Brookfield Renewable Partners, or Brookfield Asset Management as independent companies. The holding company also recently restructured Brookfield Asset Management to make it eligible for inclusion in many U.S. market indexes like the S&P 500, broadening potential ownership. But Ackman sees value in buying the holding company.
That's because Brookfield Corp. is generating significant earnings growth and free cash flow that it can use to reinvest in new opportunities and return excess cash to shareholders. It increased its quarterly dividend 13% earlier this month and holds $160 billion worth of capital to deploy into new investments.
In his recent investor presentation, Ackman pointed out that Brookfield's 15x earnings multiple is a significant discount to its intrinsic value and a discount to similar asset management companies. Indeed, management said its intrinsic value was $84 per share at its investor presentation last year, and it sees that climbing to $176 by 2029 based on a 15x multiple of distributable earnings.
The company grew distributable earnings to $3.96 per share last year, up 30% year over year. That growth accelerated in the back half of the year and management expects 25% growth per year through 2029. The stock could produce returns in line with earnings growth over that period as it currently trades below the 15x multiple management estimates for its fair value, which would be a spectacular return for any stock. Ackman certainly thinks the opportunity is real and still looks attractive as he's piled more money into shares throughout 2024.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Adam Levy has positions in Alphabet. The Motley Fool has positions in and recommends Alphabet, Brookfield, Brookfield Asset Management, Brookfield Corporation, Howard Hughes, and Uber Technologies. The Motley Fool recommends Brookfield Renewable and Brookfield Renewable Partners. The Motley Fool has a disclosure policy.
