Every quarter, many money managers have to disclose what they've bought and sold via "13F" filings. Their latest moves can shine a bright light on smart stock picks.
Today, let's look at investing giant Bill Ackman, who founded Pershing Square Capital Management in 2003. An investor with roots in real estate, Ackman is an activist, often advocating strongly for big changes at companies in which he has invested heavily. Soon after Ackman invested in the Fortune Brands conglomerate, for example, the company began looking to spin off various divisions -- which it did, breaking up into the alcohol-focused Beam, and Fortune Brands Home & Security (NYSE:FBHS). Beam has since been gobbled up by Japan's Suntory.
Pershing Square's reportable stock portfolio totaled $15 billion in value as of March 31, 2015, spread over just a small handful of stocks. Now that's concentration! Its top three holdings make up a whopping 64% of the portfolio's total value.
What does Pershing Square's latest quarterly 13F filing tell us? Well, for starters, there wasn't much activity. It's a concentrated portfolio with few positions, and the quarter featured two new buys -- Actavis plc (NYSE:AGN) and Valeant Pharmaceuticals Intl Inc (NYSE:BHC) -- and the closing of one position, Botox maker Allergan.
All of those moves are related, as Actavis recently bought Allergan in a $66 billion deal, while Ackman was pushing for Valeant Pharmaceuticals to buy it. Ackman didn't get the deal he wanted, but Allergan was bought at a premium, and Ackman accumulated a 10% stake in the company. Some estimated that he made about $2.6 billion on the deal.
The partnership between Ackman, an activist hedge fund manager, and Valeant, a major company, was an unusual one. The two joined forces to try to buy another company, with Ackman's Pershing Square reportedly agreeing to share 15% of any profit with Valeant if another company buys Allergan. Overall, this appears to have been a win-win-win resolution.
Actavis, which will be taking on the Allergan name, has become the world's 10th-largest drug company, with annual revenue topping $20 billion. CEO Brent Saunders has a big goal that makes the company worth watching: to "generate organic revenue growth at a compound annual growth rate of at least 10% for the foreseeable future."
What isn't very evident in the 13-F filing is that there continues to be much ado in the press about Ackman and Herbalife (NYSE:HLF), which Ackman has shorted. Other high-profile money managers have taken strong long or short positions, as well.
Ackman has been making allegations about the company, such as accusing it of being a pyramid scheme. He was recently dealt a blow when a judge approved a $15 million settlement in a class-action suit against the company amid reiteration that most people join the company to buy products at a discount, not to start businesses. Still, as a Wall Street Journal article noted, "Herbalife remains under investigation by the Federal Trade Commission, the Illinois and New York Attorney General's offices, U.S. Justice Department, Federal Bureau of Investigation, Securities and Exchange Commission, and a formal inquiry request by U.S. Sen. Edward Markey, D-Mass."
Meanwhile, Herbalife's last quarterly report featured an estimate-topping performance coupled with upbeat guidance, sending shares surging.
We should never blindly copy any investor's moves, no matter how talented the investor. But it can be useful to keep an eye on what smart folks are doing. Therefore, 13-F forms can be great places to find intriguing candidates for our portfolios.