Please ensure Javascript is enabled for purposes of website accessibility

After Exiting Starbucks, Ackman's Pershing Square Trims Its Chipotle Position

By Asit Sharma – Feb 9, 2020 at 4:21PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The widely-followed hedge fund tweaks its holdings following a successful run.

Pershing Square Capital, run by famed investor Bill Ackman, is cashing in on some enviable unrealized gains.

In an update to Pershing Square's investors on Wednesday, Feb. 5, Ackman disclosed that the hedge fund has exited its stake in Starbucks (SBUX -2.67%), following a dazzling 73% return over a 19-month period. Ackman observed that Pershing would likely have seen more modest returns in the global coffee retailer going forward.

He also stated that Pershing would maintain its investment in Chipotle Mexican Grill (CMG -2.63%), its best-performing holding of 2019, which delivered a return of nearly 15% during the period.

Despite this avowal of confidence in the resurgent burrito roller, which has seen shares soar nearly 189% since former Taco Bell CEO Brian Niccol took over the reins in February 2018, Pershing Square divested blocks of Chipotle stock in the days following the investor update.

The hedge fund sold 73,000 shares of Chipotle on Feb. 6 and 142,000 shares on Feb. 7, for total proceeds of $185 million. Between these two transactions, Pershing unloaded more than 6% of its Chipotle holdings, leaving it with 3.2 million remaining shares currently valued at $2.7 billion.

Two rice-and-bean burrito halves on a white plate

Image source: Getty Images.

What this means for investors

Hedge funds aren't in the business of holding stocks for ultralong periods, and Pershing is opportunistically taking profits on two extremely successful purchases. In Starbucks' case, the local, exponentially expanding Luckin Coffee, and the evolving impact of the coronavirus outbreak, pose a challenge in China, its most promising market; this spelled uncertainty and provided a rationale for a complete exit.

As for Chipotle, while Pershing apparently believes it can reap further near-term gains, it's prudently locking in some of its profits along the way. The average investor may be able to beat Pershing's returns over a longer horizon by simply holding fast to shares of Chipotle and Starbucks. But the hedge fund is signaling that it senses volatility ahead in 2020 for these two popular consumer discretionary stocks.

Asit Sharma has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Chipotle Mexican Grill and Starbucks. The Motley Fool owns shares of Luckin Coffee. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Chipotle Mexican Grill, Inc. Stock Quote
Chipotle Mexican Grill, Inc.
CMG
$1,502.76 (-2.63%) $-40.59
Starbucks Corporation Stock Quote
Starbucks Corporation
SBUX
$84.26 (-2.67%) $-2.31

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
332%
 
S&P 500 Returns
104%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/01/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.