For individual investors, it can pay to follow what the professionals are doing. Specifically, if you are a buy-and-hold investor you can find ideas from like-minded investing legends. One investor to follow closely is Bill Ackman of Pershing Square Capital Management. The billionaire investor runs a $10 billion portfolio for outside investors, owning positions in just seven stocks that he and the team have held for many years.
Here are four stocks that make up a whopping 70% of Ackman's concentrated stock portfolio.
CMG Operating Income (TTM) data by YCharts
1. Successfully betting on a Chipotle rebound
Ackman's second-largest position is Chipotle Mexican Grill (CMG 2.41%). Pershing Square bought the stock after the restaurant chain began to struggle in 2016 after an outbreak of food-borne illness at some of its locations. It helped the company steer a turnaround by bringing in new management and fixing its quality control issues.
Since the middle of 2016, Chipotle's stock has returned some 632% for shareholders. Operating income has grown even faster, up 963% over this time period as the company regained store traffic and significantly improved its margins. At the end of 2023, it had just under 3,500 stores in North America. While the company is quite large today, management thinks there is room to double its store count to 7,000 locations in North America alone, with no consideration for any international expansion.
Add on solid same-store sales growth, and Chipotle looks primed to continue growing earnings for many years into the future. At just over 18% of his portfolio, this has been a huge winner for Ackman and could continue to be in the future.
QSR EPS Diluted (TTM) data by YCharts
2. More restaurant exposure
At 17.6% of the portfolio, another large position for Pershing Square is Restaurant Brands International (QSR 1.03%). Like Chipotle, this is a bet on quick-service restaurant chains, with the company owning four brands: Firehouse Subs, Popeyes, Burger King, and Tim Hortons. It has also been one of the longer-term holdings for Pershing Square, with the first purchase of the stock coming all the way back in 2014.
Restaurant Brands' stock performance has not been as strong as Chipotle's, but it has still done well for Pershing Square. Shares are up 194% since 2014, with earnings per share (EPS) up 654% as well. It owns four distinct brands that give it diversified exposure to the entire restaurant sector with over 30,000 restaurants spread around the globe. For investors looking for durable stocks with low downside over the long term, Restaurant Brands International looks like a great choice. It is hard to imagine there not being Burger King and Tim Hortons locations 10 or 20 years from now.
HLT Operating Income (TTM) data by YCharts
3. A take rate on global travel
At 16.2% of the Pershing Square stock portfolio, Ackman has made another play on a consumer brand with Hilton Worldwide Holdings (HLT -0.89%). The investment company bought the stock back in 2018, making a bet on the growth of global travel. Hilton Worldwide owns its namesake Hilton brand but also a variety of other hotel brands like the Waldorf Astoria, Embassy Suites, and DoubleTree.
Importantly, Hilton Worldwide doesn't actually own the hotel real estate, but licenses its brands to hotel operators. In exchange, Hilton receives a cut of all sales, which hotel owners are willing to do because the Hilton brand allows them to offer higher room rates compared to if they were an independent operator.
Hilton's earnings haven't grown much since 2018 due to the pandemic, with operating income up 77% and revenue only up 20%. But it looks like a recovery may be on the way, with spending on travel fully rebounding in most markets. With its exposure to global travel, Hilton is poised to benefit from this recovery, and its business model is hedged to inflation. It is unsurprising then to see the stock make up a large portion of Ackman's portfolio in early 2024. This is a great business with a long-standing global brand.
4. Don't forget the largest holding: Alphabet
Ackman's largest holding, and his most recent purchase, is Alphabet (GOOG 9.96%) (GOOGL 10.22%). Pershing Square bought shares of the parent company of Google Search and YouTube in early 2023. It is now close to 19% of the stock portfolio.
Ackman likely purchased Alphabet because of its falling valuation at the beginning of last year due to fears it was losing the new race in artificial intelligence (AI) to competitors like Microsoft. These fears proved to be unwarranted, with Alphabet continuing its earnings growth through 2023. The company's operating earnings hit an all-time high of $84.3 billion in 2023, leading the stock to soar 71% since the beginning of last year.
Alphabet looks like a quintessential Pershing Square bet. It is a diversified holding company with long-standing global brands, and the hedge fund manager decided to strike and make it a large position when its price-to-earnings ratio (P/E) came down to around 15 early last year.
Investors can learn a lot from Pershing Square and Ackman. He makes concentrated bets on stocks with strong brands trading at reasonable valuations. Then, he holds his positions for many years and lets his winners run.
