Retail investors love to keep an eye on what billionaire investors and their hedge funds are buying and selling. The reason is obvious: Most of these billionaires have had incredibly successful careers and are considered among the best investors in the market.
However, it's important for investors to conduct their own due diligence because institutional trades are often reported months after they occur, many hedge funds invest on short-term horizons, and one can never know the true intent behind an investment. All that said, following billionaires is a good way to generate new ideas and check one's thesis behind current investments.
In today's era, few billionaires receive more attention than Bill Ackman, CEO of Pershing Square Capital Management, the investment manager of Pershing Square Holdings. In a recent annual presentation, Pershing disclosed that it recently sold its stake in Hilton Hotels Corp. (HLT 0.34%) and piled into another "Magnificent Seven" company "trading at a deeply discounted valuation."
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A successful investment that has run its course
Pershing Square first acquired a position in Hilton at the end of 2018, so it's been a long-term investment for the fund. In Pershing's presentation, management praised its investment in Hilton, noting that Hilton's expansion helped increase fee revenue by 70% during the time the fund owned the stock. Meanwhile, the company's best-in-class management team did a good job of controlling costs, while also repurchasing over 20% of outstanding shares.
NYSE: HLT
Key Data Points
During Pershing's investment, Hilton's earnings per share increased 150%, and the stock's valuation multiple grew from 20 times earnings to roughly 32 times in recent months. The stock currently trades at roughly 36 times forward earnings.
"Pershing Square exited our position in Hilton earlier this year as we expect prospective returns are unlikely to meet our high return threshold given current valuation levels," Pershing said in its presentation. Knowing when a stock has reached a valuation that sets a high long-term threshold is an important skill for investors to grasp.
A clear beneficiary of artificial intelligence
In Pershing's presentation, the firm revealed a new position in Meta Platforms (META 2.48%) equivalent to 10% of its capital. The Wall Street Journal estimated the investment at roughly $2 billion. This also marks the third Magnificent Seven company Pershing has bought in its 10-stock portfolio (Alphabet and Amazon are the other two).
Ackman and his team said in the presentation that they believe investor concerns over high artificial intelligence (AI)-related capital expenditures are masking the stock's long-term potential from AI, and he is not alone. Meta's stock surged following its recent earnings report, which revealed 2026 capital expenditures (capex) guidance of $115 billion to $135 billion. Pershing also said Meta trades at a "deeply discounted valuation for one of the world's greatest businesses."
NASDAQ: META
Key Data Points
As many know, Meta owns some of the most well-known social media platforms in the world, including Instagram, Facebook, and WhatsApp. These businesses collectively have a global daily active user base of 3.5 billion and generate tremendous ad revenue.
Meta is often viewed as a clearer beneficiary of AI, even among companies in the Magnificent Seven. The company can leverage AI to recommend content and ads that better align with users and increase engagement. AI also has other use cases in the company, including the ability to automate AI campaigns and generate campaign content, as well as more futuristic uses such as AI digital assistants and wearable technology.
Pershing believes the company will be able to grow earnings significantly, following intense spending this year. I think many people are looking at Meta in a similar manner. AI will greatly improve the company's core ad business, and the valuation had dropped heading into the year, trading at 22 times forward earnings.
I think the argument makes sense, although Ackman's portfolio continues to become a bigger and bigger bet on AI. An AI fallout could be problematic for Pershing. However, it seems the market is transitioning from an approach that centered on buying everything with exposure to AI to one focused on picking winners and losers.
