Bill Ackman ranks among the most successful investors on the planet. Thanks to the tremendous success of his Pershing Square Capital Management hedge fund, Ackman's net worth currently totals close to $9 billion.
But the billionaire isn't a big fan of diversification. Pershing Square's portfolio includes only nine stocks. And two of them were added in the second quarter of 2024. Here's why Ackman bought $514 million worth of those two stocks in Q2.
Ackman's two Q2 additions
Ackman increased his stake in one existing Pershing Square holding in Q2, buying another 381,000 shares of Restaurant Brands International. However, he also initiated new positions in Brookfield Corp. (BN +1.33%) and Nike (NKE +1.90%).
NYSE: BN
Key Data Points
Pershing Square bought 6.85 million shares of Brookfield valued at $284.7 million at the end of Q2. This was Ackman's first time to own the stock. Brookfield is a global investment firm with five publicly traded subsidiaries:
- Brookfield Asset Management (BAM +0.00%)
- Brookfield Business Partners (BBU +0.00%)
- Brookfield Infrastructure Partners (BIP +2.34%) (BIPC +0.00%)
- Brookfield Renewable Partners (BEP +2.40%) (BEPC +0.00%)
- Brookfield Property Partners (BPYP.O 0.22%)
NYSE: NKE
Key Data Points
The hedge fund purchased 3.04 million shares of Nike in Q2 that were worth $229.1 million at the end of the quarter. Ackman initiated a position in Nike for the first time in the fourth quarter of 2017. However, he didn't hold it for long, exiting the stake in the first quarter of 2018.
Many investors are no doubt already familiar with Nike. The company is the world's biggest seller of athletic footwear and apparel. Its products are sold in retail stores (including over 1,000 owned by Nike) and online.
Why Brookfield and Nike?
Ackman hasn't publicly stated why he invested in Brookfield and Nike. However, we can make some pretty good guesses.
I suspect valuation ranks near the top of the list for both stocks. Brookfield's forward price-to-earnings ratio is 10.3. That's dirt cheap compared to the S&P 500, which trades at over 21 times forward earnings.
Nike isn't as inexpensive with its forward earnings multiple of 25.2. But the stock is down more than 25% in 2024. Nike is also trading near its lowest trailing price-to-earnings ratio in the last 10 years.
More important than valuation to Ackman, though, is underlying business strength. There's a good argument for both Brookfield and Nike on this front.
Brookfield's distributable earnings increased 79% year over year in the second quarter of 2024. The company expects annualized returns of at least 15% over the long term. The businesses owned by Brookfield generate steady cash flow, much of which is undergirded by inflation-indexed contracts.
Nike faces some headwinds, including lower sales in its lifestyle business and declining customer traffic in the greater China region. However, the company has successfully navigated these kinds of challenges in the past. Nike CEO John Donahoe acknowledged in the June quarterly conference call that fiscal 2025 "will be a transition year" but said the company is making "real progress on our comeback."
Are these stocks good picks for investors who aren't billionaires?
I predict that Ackman's bets on Brookfield and Nike will pay off if he holds the stocks long enough. But are these stocks good picks for investors who aren't billionaires? I don't think they're bad picks, but there are better options in my opinion.
For example, instead of buying Brookfield consider investing in one of its subsidiaries -- Brookfield Infrastructure. If the Federal Reserve cuts interest rates, bond yields will fall and spur income investors to seek higher-paying alternatives. Utility stocks like Brookfield Infrastructure should be direct beneficiaries of this trend.
Rather than buying Nike, investors might want to check out Simon Properties Group. Like Nike, the real estate investment trust (REIT) is exposed to the retail sector. Simon Properties Group owns premier dining, entertainment, and shopping properties. It's performing well, recently increasing its full-year guidance. A Fed rate cut could also provide a catalyst for the REIT stock.
