Ah yes... it's 13-F season, the time when investors' fancies turn to what the investment gurus are buying.
Bill Ackman, the legendary value brain behind Pershing Square Capital Management, has been pretty busy these days. With a focused management style that typically involves accumulating large stakes in companies, Ackman has been able to implement changes within major companies and unlock gains for shareholders in the process.
According to his recent filling in fact, he just increased his position in Canadian Pacific (NYSE: CP), securing enough seats on the company’s board to oust the CEO, Fred Green.
But it's his position with venerable retailer J.C. Penney (NYSE: JCP) that's been catching my attention. Let me explain...
Just like with Canadian Pacific, Ackman has been able to make major changes with Penney's board of directors. In November of last year, then-CEO Mike Ullman was replaced by Ron Johnson, Apple's (NASDAQ: AAPL), the brain behind the Apple Store. The result has been a hip, facelift strategy for the old-line department store.
So should you follow Ackman's lead and invest in this department store mainstay?
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Well, Ackman's no dummy. Since starting his fund in 2004, Pershing Square's average annual return has been 22%. That's pretty good, considering the S&P 500 has only returned a dismal 1.8% annually in the same period.
But is Ackman barking up the right tree with Pershing's 16.5% stake in Penney's?
Another Target?
In 2009, Ackman mounted a well-publicized proxy fight to gain control over big-box retailer Target (NYSE: TGT). One major platform of Ackman's plan was to bundle up the real estate that the company owned into a REIT (real estate investment trust). Ackman is a value investor with a long history of corporate activism, so with this move, he hoped to unlock cash he felt was buried in the balance sheet.
He embarrassingly failed and retreated to lick his wounds.
Now that Ackman is truly in the J.C. Penney's driver's seat, is he gunning to execute the same strategy? I think he is.
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Penney's owns 40% of its real estate locations, while the remainder is secured by long-term leases at rock-bottom rents. His design is to monetize the unused asset and use the cash to enhance shareholder value and to breathe life into the old chain. I totally agree with the REIT-ification strategy of JCP's properties, but I'm not so sure about the hip-ification phase of Ackman's plan, if you will.
Retail's a tough, tough business. The business battlefield is littered with the bones of the fallen, and while J.C. Penney has survived through what appears to be prudent management, Johnson, the new CEO, has really shaken things up.