Investing in stocks is a great way to accumulate wealth over long periods, but with thousands of companies to choose from, it's not always easy to decide which ones to pick. One way to gain inspiration is to observe what successful investors are doing.
Consider Bill Ackman, the founder and CEO of Pershing Square Capital Management, a hedge fund. Ackman has a terrific track record, so he must know a thing or two about investing in the stock market.
Let's examine three of his funds' largest holdings that make up a combined 39.5% of the portfolio: Amazon (AMZN 1.52%), Alphabet (GOOG 1.69%) (GOOGL 1.66%), and Uber Technologies (UBER 2.83%). Should investors follow Ackman's lead and invest in these stocks?
Image source: Getty Images.
Amazon -- 8.73% of portfolio
Amazon, which makes up 8.73% of the fund (as of the third quarter), is an excellent choice for any long-term investor. The company has a hand in several large industries, including e-commerce, cloud computing, artificial intelligence (AI), and digital advertising. Consider Amazon's e-commerce operations, where it makes money through direct-to-consumer sales and third-party seller fees.
This isn't a high-margin business, but Amazon is looking to improve things here through its use of industrial robots, which help reduce fulfillment costs. Over the next decade, we can expect Amazon to record lower costs and higher profits within its e-commerce division. The company is likely to pass these cost savings on to customers, thereby having a domino effect of higher e-commerce traffic, more transactions, and higher revenue from ads, among other benefits.
NASDAQ: AMZN
Key Data Points
Of course, Amazon's core growth engine is its cloud division. Here too, the addressable market looks massive. As Andy Jassy, the company's CEO, stated a couple of years ago, 85% of IT spending still happens on premises -- things haven't peaked in that department.
Beyond all the business segments and monetization opportunities, one of Amazon's most important strengths is its relentless focus on meeting customer needs, a core reason it has been able to attract more than 200 million Prime members. Couple that with the company's ability to identify and pursue high-growth opportunities, and you've got the making of a corporation capable of delivering superior returns over the long run.
Alphabet -- 10.52% of portfolio
Alphabet, which accounts for 10.52% of Pershing Square Holdings' portfolio, is another great long-term bet. It is the undisputed leader in the search engine niche, and the launch of AI chatbots has not significantly impacted its dominance. On the contrary, Alphabet adapted by launching AI overviews and AI mode on its famous search engine. The company noted that these are helping drive query growth, which suggests that Alphabet's AI investments are actually leading to increased engagement.
NASDAQ: GOOGL
Key Data Points
One possible reason is that AI mode has a conversational flavor, helping to synthesize search results in ways users would have taken far more time to accomplish manually. Whatever the case may be, Alphabet's digital ads empire is thriving through Google and YouTube. And it's not even the company's most important growth engine. That title goes to Alphabet's cloud division, whose sales are increasing much faster. Amazon should benefit from the growing demand for cloud services, partly driven by AI-related services.
The company's cloud backlog was $155 billion as of the end of the third quarter, representing a 46% quarter-over-quarter increase. Alphabet's core businesses are doing very well, and the company has other potential long-term tailwinds, including its work on autonomous vehicles through its Waymo subsidiary. These are all good reasons to follow Ackman's lead and double down on the stock for the long haul.
Uber Technologies -- 20.25% of portfolio
Uber Technologies is the largest holding in Ackman's portfolio, with the fund having 20.25% of its portfolio invested in the ride-hailing giant. That's a big bet on the future of this industry and the company that leads it.
Is it justified? In my view, the answer is yes. For one, Uber is delivering strong financial results, with rapidly growing revenue and earnings, as well as strong user growth and engagement. In the third quarter, the company's number of trips and monthly active platform customers both increased meaningfully.
NYSE: UBER
Key Data Points
Second, Uber has a strong economic moat thanks to network effects, and a growing number of customers tells us that this network effect is strengthening.
Third, the company still has a vast runway for growth. Younger people in the U.S. are getting licenses later and driving less than previous generations at the same age. While there are many reasons for this demographic shift, it has important long-term implications for Uber, which will be one of the ways these younger people get places when they need to.
As they get older, fewer of them will likely see the need to obtain a license, leading to a larger pool of non-drivers who require rides. That's all good for Uber.
And that's before we highlight that even its current markets are underpenetrated. Uber estimates that only about 10% of adults in its top 10 countries use its platform at least once a month. The addressable market is vast, the results are there, and a competitive advantage is strong. Uber is yet another great stock to buy and hold on to for a while.
