Investing With the Gurus – Bill Ackman’s First Quarter 2018 Portfolio Update

Perishing Square Capital Management’s Bill Ackman has been in the news for a multitude of reasons lately. Recently, he took a $1B stake in Lowe’s Companies, Inc. (LOW). But skeptics believe that, given his record in the Retail industry, this too might be a losing bet. But after recent setbacks like Valeant Pharmaceuticals International Inc (VRX) and Herbalife Nutrition Ltd. (HLF), is the Guru ready to change his destiny with defeat?

Recently, speaking at the Sohn Investment Conference in New York, Ackman appeared to have learned his lesson. He told a room-full of his peers: “I’m incredibly focused. I’ve got something to prove,”. The question is – is a turn-around imminent? Let’s look at how Perishing Square fared in the most recent reported quarter, Q1-2018. Perhaps we too can learn some lessons from Guru Ackman?

The Portfolio

The latest quarter saw Ackman’s total portfolio value drop nearly 18%, from $5.8 billion to $4.8 billion. The Guru’s Q1-2018 portfolio also saw a net new addition of one holding, inching it up to 8 holdings, from 7 held in Q4-2017.

Bill Ackman portfolio

In terms of the underlying value changes to individual holdings, it was Howard Hughes CORP (HHC) that contributed the largest quarter-over-quarter (Q/Q) decline in portfolio value. HHC saw a 50% decline from the previous quarter. Changes to the number of HHC shares held (from 4,704,534 shares to 2,204,534) accounted for most of that difference.

Mondelez Intl INC (MDLZ) and Restaurant Brands Intl INC (QSR) were next, in terms of accounting for the changes to Pershing Square’s portfolio value. Decline in value of these two holdings (-32% and -15%) were attributable largely to trimming in their positions by 30.53% and 8.23% respectively.

Other notable reasons for the portfolio’s decline might be attributed to a -13% and -3% change in value of Automatic Data Processing INC (ADP) and Platform Specialty Prods COR (PAH). While Guru Ackman trimmed his holdings of ADP by 9.73% in the latest quarter, the change in PAH occurred solely as a result of share price decline.

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The only bright spot, if there is one in this portfolio, appears to be Chipotle Mexican Grill INC (CMG). Though Ackman held his Q4-2017 holdings of CMG steady, the stock value rose by 12%. Perishing Square also added one new holding, United Technologies CORP (UTX), and exited out of a Q4-2017 position in Nike INC (NKE).

After all’s said and done, QSR still holds top place (as it did in Q4-2017) in Ackman’s portfolio, accounting for 29% of its weight. The next, in the top-3 list, is CMG, which accounts for 19% of the portfolio. And while ADP also accounts for approximately 19% (18.65%) of the portfolio value, it has slipped from its 2nd place Q4-2017 ranking.

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Digging deeper into Ackman’s Q1-2018 portfolio, we see that Consumer Cyclical (48%) names, like QSR, CMG, still dominate. The Guru’s second most-loved sector appears to be Industrials (24%), highlighted by ADP and UTX (a new addition). Consumer Defensive (14%), with names like MDLZ, is the only other double-digit sector weighting in the portfolio.

Takeaway’s from The Portfolio

So, what might we learn from Bill Ackman’s portfolio changes since Q4-2017? Assuming that all of this “learning” is relevant and actionable (remember: You are looking at data that’s several months old by now!), here’s what you can takeaway:

a) Ackman appears to love the Restaurant business. Together, the two restaurant industry names (QSR and CMZ) account of 47.92% of the portfolio

b) While Consumer Cyclical’s seem to be near and dear to this Guru’s heart (48% of the portfolio), the Footwear & Accessories industry (within Consumer Cyclicals) isn’t! He exited NKE during Q1-2018

c) If we were to pick one stock to hold today, from amongst this Guru’s current basket of holdings, it would likely be CMG. It has run up nearly 30% during (and after) the Q1-2018 review period

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Of course, before you run out and buy this amazing winner, you need to realize it has a TTM P/E Ratio of 69 (per Yahoo Finance at the time of this post). That makes it a pretty expensive stock at these levels.

With a Bachelor's degree in Commerce (with Accounting/Finance as a major), a diploma in Technology Management and Entrepreneurship, and Microsoft’s IT Infrastructure Library (ITIL) certification (including from the London Chamber of Commerce and Industry, and the University of New Brunswick in Canada), Monty brings a diverse repertoire of analytical and writing skills to the team. Monty’s vast international work experience, in Audit, Tax, Project Management, IT and Management Consulting, including with companies like Price Waterhouse, Peat Marwick and KPMG, adds a unique perspective to the content he produces.