In case you missed it, the most important data release on Wall Street occurred on Feb. 14, and it has nothing to do with earnings season.
No later than 45 days following the end of a quarter, institutional investors with at least $100 million in assets under management (AUM) are required to file Form 13F with the Securities and Exchange Commission. A 13F provides investors a way to look under the proverbial hood of Wall Street's top hedge fund managers to see which stocks they've been buying and selling. In other words, 13Fs can help investors locate which stocks and/or trends have piqued the interest of the most-prominent asset managers.
Although Warren Buffett's 13F at Berkshire Hathaway tends to be the most anticipated, he's far from the only billionaire fund manager that can make waves on Wall Street.
Image source: Getty Images.
For example, Pershing Square Capital Management's billionaire chief Bill Ackman has an extensive track record of generating profits as an activist investor. Ackman builds up sizable positions in select businesses with the hope of effecting corporate change and unlocking shareholder value. Ackman's fund closed out 2024 with $12.6 billion in AUM, which was spread across 10 holdings.
But there have been some notable changes to Ackman's fund over the last year. While he's been sending shares of Chipotle Mexican Grill (CMG 4.49%) packing, he suddenly can't stop buying shares of a beloved consumer brand that's skyrocketed by 67,200% (including dividends) since its initial public offering (IPO).
Billionaire Bill Ackman spills the beans on Chipotle
Fast-casual restaurant chain Chipotle Mexican Grill has been a core holding for Ackman's Pershing Square for more than eight years. Based on data from 13F aggregate WhaleWisdom.com, Ackman's fund has been a continuous shareholder since the third quarter of 2016 and has an estimated cost basis in Chipotle of less than $9 per share.
During the December-ended quarter, Pershing Square dumped more than 4.1 million shares of Chipotle. But over the trailing-12-month period, Ackman's fund sent close to 16.6 million split-adjusted shares -- Chipotle completed a historic 50-for-1 forward split in June 2024 -- to the chopping block, equating to 40% of Pershing Square's stake at the end of 2023.
NYSE: CMG
Key Data Points
It's possible this selling activity represents nothing more than benign profit-taking. Chipotle's competitive advantages have sent its stock notably higher in the 19 years it's been a publicly traded company. In no particular order, these competitive advantages include:
- Its ability to earn consumers' trust by using only responsibly raised meats and locally sourced vegetables (when possible).
- Leaning on innovation to drive average tickets and margins higher, such as the introduction of mobile order-dedicated drive-thru lanes (known as "Chipotlanes").
- The company's relatively small menu, which allows its staff to prepare ingredients fresh daily, as well as expedite orders both in-store and via Chipotlanes.
But there may be more nefarious reasons behind Ackman's selling.
For instance, activist investors often seek out perceived price dislocations. In Chipotle's case, it can be argued that its price dislocation is to the upside (i.e., it's not cheap or undervalued). Excluding new locations, comparable restaurant sales growth of 7.4% in 2024 isn't all that impressive when shares are valued at an estimated 42 times forecast earnings per share in 2025.
To build on this point, comparable restaurant sales growth slowed to 5.4% in the December-ended quarter, with restaurant level operating margin declining by 60 basis points to 24.8%. Historically, Chipotle Mexican Grill has had little issue passing along higher prices to its consumers, with its customers willingly paying more for perceived-to-be higher-quality food. But what the company's operating results suggest is that inflation is becoming troublesome.
With Chipotle's value proposition long gone and comparable restaurant sales growth slowing, Ackman appears content to lock in his fund's gains.
Image source: Getty Images.
Ackman steps into a big position with this beloved consumer brand
But while billionaire Bill Ackman has been dumping shares of Chipotle Mexican Grill, he's been buying shares of adored consumer brand Nike (NKE 1.66%) hand over fist. As of March 31, 2024, Pershing Square Capital Management didn't own a single share of this footwear goliath. But as of the end of 2024, Ackman's fund held 18,768,946 shares, worth more than $1.4 billion.
Ackman's interest in Nike has to do with its fall from grace. Since hitting an all-time closing high on Nov. 5, 2021, shares of the company have lost 56% of their value, as of Feb. 18.
Nike's issues can primarily be traced to former CEO John Donahoe. Prior to joining Nike in January 2020, he had served as CEO of eBay and ServiceNow, and was expected to bring Nike into the digital era. Despite Donahoe's tech chops, efforts to build the company's direct-to-consumer platform backfired, with weakness in its core wholesale partnerships weighing heavily on sales.
Nike's board didn't make the same mistake when it hired Elliott Hill to become its new CEO last year. Whereas Donahoe had plenty of tech savvy, he was green around the ears when it came to retail footwear. Prior to retiring in 2020, Hill spent more than three decades at various senior leadership positions within Nike. He understands what makes the footwear industry tick and should help Nike get back to its roots.
NYSE: NKE
Key Data Points
Hill's vision is simple: He's going to focus on the sports products that made the brand popular, will lean on marketing messages that engage consumers, and plans to cut back on discounting. This means putting athletes in the spotlight, as Nike has done so well for decades, and rebuilding the wholesale partnerships that made Nike successful.
But if there's one constant when it comes to consumer-brand turnarounds, it's that they don't happen overnight. It'll take time to rebuild trust with wholesalers and alter Nike's image in the minds of some consumers. Bill Ackman is no stranger to long-term investing -- especially if he sees a bona fide value.
If Nike were to simply get back to where it was in fiscal 2024 (the company's fiscal year ends on May 31), where it earned $3.73 per share on an adjusted basis, its price-to-earnings (P/E) ratio as of this writing would be less than 21. This would mark a 39% discount to its average P/E ratio over the trailing-five-year period.
If (big "if') Hill is successful in changing the narrative, Nike stock could be a phenomenal value for Ackman.
