Billionaire investor Bill Ackman is seeking to replicate some of the successful qualities of his longtime hero, Warren Buffett. He has even considered ways to establish a modern equivalent to Berkshire Hathaway, the company currently associated with Buffett.
Ackman’s investment strategy involves acquiring substantial stakes in stocks that he believes are significantly undervalued by the market. He typically holds onto these stocks for extended periods, often advocating for management to implement changes that could unlock value for shareholders.
Although individual investors cannot directly invest alongside Ackman, they have the opportunity to emulate his investment style by monitoring his hedge fund, Pershing Square Capital Management. Ackman discloses his portfolio holdings quarterly with the Securities and Exchange Commission (SEC) and frequently provides additional information via social media platforms.
Presently, 44% of Ackman’s $13 billion portfolio is concentrated in the stocks of three companies. The following provides a closer examination of each one:
Uber (17%): Ackman introduced a new position in Uber Technologies in February, viewing the shares as attractively priced relative to the company’s growth potential. He contends that many investors overestimate the threat of autonomous vehicles to Uber, which might benefit the company due to its leading role as a network operator. Uber’s network advantage, which effectively balances supply and demand for rides, is a significant asset. Partnering with an autonomous vehicle company could therefore enhance Uber’s capabilities globally. Moreover, the increased presence of autonomous vehicles could potentially reduce costs and boost demand for Uber’s services. Currently, Uber is successfully generating strong growth in free cash flow, with $6.9 billion produced last year, an increase of 105%. Management anticipates continued growth of roughly 85% over the next two years, alongside solid growth in earnings before interest, taxes, depreciation, and amortization (EBITDA). Uber’s stock price is approximately where Ackman purchased it in February, with a forward earnings estimate ratio of just 22. Ackman believes the stock could double within three to four years based on management’s long-term outlook for annual EBITDA growth of 30% to 37% through 2026.
Alphabet (14%): In early 2023, Ackman established a position in Alphabet after its stock suffered due to concerns that artificial intelligence chatbots, such as OpenAI’s ChatGPT, might impact Google’s core search business. However, Alphabet has demonstrated that AI could be advantageous for its operations. The company integrated generative AI answers into search results, resulting in improved efficiency of its Gemini model. This integration reduced the cost of AI Overviews in search results by 90% over 18 months, allowing for expansion to 100 countries by the end of last year. Google’s AI-generated answers have increased user engagement and satisfaction, and have been monetized at similar rates to non-AI search queries. Google Cloud has also experienced strong demand, with revenue increasing by 30% last year. Alphabet’s stock has a forward P/E ratio of just 17.4 amid the current market downturn, presenting an opportunity similar to when Ackman first purchased it.
- Brookfield (13%): Ackman began purchasing shares of the alternative asset manager Brookfield in the second quarter of 2024. He augmented his position for three consecutive quarters, making it a prominent part of his hedge fund’s holdings. Brookfield’s complex corporate structure aims to unlock value for investors, aligning well with Ackman’s investment philosophy. The company presents investors with opportunities to focus on specific aspects of its operations, such as renewable energy through Brookfield Renewable Partners or Brookfield Asset Management (BAM). Brookfield continues to expand its renewable energy, infrastructure, real estate, and private equity investments, also growing its insurance business. Management set a five-year target in September to achieve $47 billion in cumulative free cash flow, with plans to reinvest much of it into new opportunities while returning some through strategic share buybacks. Brookfield’s shares trade at about 12.3 times distributable earnings, a figure Ackman considers undervalued in comparison to U.S. peers. Given recent share price declines, now may be an opportune time to invest in this stock.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Additionally, Adam Levy holds positions in Alphabet. The Motley Fool has positions in and recommends several companies, including Alphabet, Berkshire Hathaway, Brookfield, Brookfield Corporation, Howard Hughes, and Uber Technologies.
