Bill Ackman started Pershing Square Capital Management in 2004. Since then, he's become famous as an activist investor. He's also become very wealthy. Ackman's net worth is estimated to be around $3.5 billion.
Unlike some of his fellow billionaire investors, Ackman's portfolio isn't very big. He currently owns only six stocks. The hedge fund manager doesn't appear to be all that concerned about diversification, but there's an old saying that quality is better than quantity. At least one of his Pershing Square holdings is of premium quality. Here's why Ackman's top stock is a no-brainer to buy and hold.
Ackman's biggest bet
Ackman has been known to make big bets, both for and against individual stocks. His biggest bet right now is on Lowe's (LOW -0.49%).
Pershing Square first initiated a position in the home improvement giant in the second quarter of 2018. Ackman saw an opportunity for Lowe's to step up its efforts to catch up with The Home Depot (HD 0.43%), which has consistently ranked ahead of Lowe's in the home improvement market.
Over the subsequent years, Ackman added to his stake in Lowe's from time to time. He also occasionally sold some shares. His most recent purchase of the stock came in the third quarter of 2022. Today, Pershing Square owns nearly 10.4 million shares of Lowe's that are worth more than $2 billion. The home improvement stock makes up 23.5% of the hedge fund's total portfolio.
Things will turn around
Lowe's has been a big winner for Ackman through the years. However, some might question whether the stock is a no-brainer buy right now. We only have to look at Home Depot's latest quarterly update to understand why they have those questions.
Home Depot's fourth-quarter revenue missed Wall Street estimates. More importantly, the company provided disappointing guidance for 2023. CEO Ted Decker said in Home Depot's Q4 conference call with analysts that the company "expect[s] this to be a year of moderation in demand for home improvement."
What's true for Home Depot is usually true for Lowe's. Sure enough, Lowe's also missed analysts' Q4 revenue estimates. The company projects 2023 comparable sales will be at best flat and potentially close to 2% below last year's levels.
But Lowe's CEO Marvin Ellison said in a press release that he's "confident" that the company is taking the right steps to deliver growth over the long term. And it's the long-term prospects for Lowe's that make it a no-brainer stock to buy and hold, in my view.
Ask pretty much any housing expert, and they'll tell you that the U.S. has a housing shortage.
The solution to this shortage requires building more homes. It also involves fixing up existing homes to make them more attractive to buyers. Lowe's stands to profit over the next decade as housing inventory and home improvement spending increase. Ellison knows this. So does Ackman.
Two other reasons to buy and hold Lowe's stock
I think that the long-term growth prospects for Lowe's rank as the biggest plus for the stock. However, there are a couple of other reasons to buy and hold Lowe's.
The company has increased its dividend for 48 years in a row and has paid a dividend in every quarter since 1961. Its dividend yield currently stands at nearly 2.2%. Over the past 10 years, Lowe's dividends have boosted its total return from a little over 400% to more than 500%. That's significant.
Don't overlook Lowe's valuation, either. Shares are trading at only 14.5 times expected earnings. This multiple looks especially attractive in light of the company's long-term growth opportunities.
Bill Ackman became a billionaire by making smart bets through the years. I think that his big bet on Lowe's will continue to pay off for years to come.
