There are many billionaires who style themselves as Buffett-esque investors. They may not quite be value investors in the vein of Graham and Dodd, Warren Buffett’s influential mentors, but they do seek out stocks trading below their intrinsic value.

Bill Ackman of Pershing Square Capital is one of them. Like Buffett, Ackman likes to bet big on businesses. Where the Oracle of Omaha has nearly 30% of Berkshire Hathaway‘s (NYSE:BRK-A)(NYSE:BRK-B) portfolio invested in Apple (NASDAQ:AAPL) stock (down from nearly half a year ago), Ackman has two-thirds of Pershing Square money invested in just four stocks.

Ackman also seemingly agrees with Buffett’s warning against diversification. While Berkshire Hathaway has to own dozens of companies because of its size, he is generally not a fan of owning a lot of stocks. He told Berkshire shareholders in 1996, “diversification is, as practiced generally, makes very little sense for anyone that knows what they’re doing. Diversification is a protection against ignorance.” He said three stocks is probably all anyone needs to invest in. Ackman’s Pershing Square owns just nine.

Ackman’s two biggest positions account for over 36% of his portfolio. Hilton Worldwide Holdings (NYSE:HLT) is the largest at nearly 19% while Chipotle Mexican Grill (NYSE:CMG) represents 17%. It was knocked down to second place after Ackman sold 22% of his holdings in the Mexican food restaurant in the second quarter.

With both being big consumer-facing businesses in their respective industries — hospitality and fast-casual dining — which of these Bill Ackman stocks is the top one to buy? Let’s dig in and find out.

24/7 Wall St. Insights:

• Billionaire investor Bill Ackman has enjoyed cumulative returns of 1,933% since Pershing Square Capital’s inception in 2004. That is a compound annual return of 15.7%.
• Ackman has a Buffett-like affinity for value investing and is willing to make big bets on a small group of stocks, a formula that has proven to be a winning strategy over the years.
• If you’re looking for some stocks with huge potential, make sure to grab a free copy of our brand-new “The Next NVIDIA” report. It features a software stock we’re confident has 10X potential.

The case for Hilton Worldwide Holdings

Hotel operator Hilton Worldwide Holdings has a competitive advantage in the hospitality industry because of its upscale image in the luxury market. Yet like many businesses catering to the well-heeled, Hilton is attempting to reach down into the middle market by bringing an accessible luxury brand closer to the masses.

Earlier this year Hilton partnered with Small Luxury Hotels of the World to offer its customers, including the 195 million members of its Hilton Honors rewards program, the opportunity to book stays at 560 luxury boutique hotels in 90 countries.

The hotelier followed that up by acquiring in April a controlling interest in Sydell Group‘s NoMad Hotels brand. They join Hilton’s midscale Spark by Hilton brand launched last year, its extended stay LivSmart Studios brand also launched last year, and its recent acquisition of Graduate Hotels as a lifestyle brand.

This broad selection of short- and extended-stay offerings highlights Hilton’s pricing power and expansion opportunities. In all, the hotel chain has 24 world-class brands worldwide comprising nearly 7,800 properties.

The market seems to recognize its growing industry leadership. HLT stock is up 30% in 2024 and is 53% higher over the past year. But it seems Hilton’s potential has been priced in. Shares go for 50 times trail earnings, 29 times next year’s estimates, and 5x revenue. It’s not a cheap stock at these levels.

The case for Chipotle Mexican Grill

Fast-casual dining chain Chipotle Mexican Grill has yet to recover from the 50-for-1 stock split it effected in June and CEO Brian Niccol jumping ship to take over the reins at Starbucks (NASDAQ:SBUX).

Although stock splits are usually seen by the market as a positive event, Chipotle’s massive split, the largest in NYSE history, came as the restaurant operator was seeing sales slow and a second-quarter earnings report that offered up weaker than expected guidance. Coupled with Niccol abandoning the company, and it seemed Chipotle’s incredible growth story over the past few years might have hit the pause button.

It was fortuitous timing for Ackman who seems to have sold his shares somewhere near the top at around $60 a stub. The stock fell as low as $48 a share in the aftermath, but it’s clawed its way back to around $57 each. 

Not that Chipotle Mexican Grill stock is cheap either. CMG shares trade at 57 times earnings, 44x estimates, and over seven times sales. As the restaurateur hasn’t found a new CEO yet and it may be entering a new, slower growth phase, Hilton Worldwide Holdings looks like the better stock buy.

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