Investing
Billionaire Bill Ackman Takes Profits And Doubles Down on This Stock?
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Bill Ackman made news recently when Fortune reported that he might play a part in Elon Musk and Vivek Ramaswamy’s Department of Government Efficiency, or DOGE, the committee tasked with cutting federal government costs and jobs.
The billionaire activist investor knows a thing or two about making changes at the companies his hedge fund, Pershing Square Capital, invests in.
In 2018, Ackman helped get current Starbucks (NASDAQ:SBUX) CEO Brian Niccol hired as the then-new CEO of Chipotle Mexican Grill (NYSE:CMG), which was struggling. Starbucks hired Niccol away from CMG in August precisely because his work revived Chipotle.
In the quarter ended Sept. 30, Ackman’s hedge fund made six moves to its ultra-focused $13 billion portfolio, including adding to three stocks and reducing three others.
However, the moves made with Brookfield Corp. (NYSE:BN) and Hilton Hotels (NYSE:HLT) stood out.
Key Points About This Article:
- Although Ackman cut Pershing’s stake in Hilton Hotels (NYSE:HLT) by 17%, it’s still a top holding of the billionaire’s hedge fund.
- Brookfield Corp. (NYSE:BN) jumped into the top spot in Q3 2024 with a massive $1 billion+ buy of the alternative asset manager’s stock.
- In five years, BN stock could be worth three-fold.
- Sit back and let dividends do the heavy lifting for a simple, steady path to serious wealth creation over time. Grab a free copy of “2 Legendary High-Yield Dividend Stocks” now.
It’s Never a Bad Thing to Take Profits
Of the three stocks Pershing Square reduced its holdings in during the third quarter, Hilton was the biggest, both in terms of the number of shares sold (1.58 million) and the $342 million estimated value of the transaction based on the quarter’s average share price of $216.66.
While the hedge fund reduced its position in HLT by nearly 18%, if you own Hilton stock, you shouldn’t consider the move to be a poor reflection on the stock or the company. This was merely profit-taking.
Hilton is a stock that Ackman has held since late 2018. Over the years, Pershing has paid an estimated $87.57 a share for its Hilton stock, considerably less than where it’s trading. It remains the hedge fund’s second-largest position, valued at $1.7 billion and accounting for 13.05% of its holdings.
In 2020, Ackman made $2.6 billion in a matter of days after using $27 million in hedges against credit markets to protect his firm’s portfolio. He put some of the profits into Hilton stock.
Analysts are lukewarm about Hilton stock. Of the 28 covering it, only 11 rate it a Buy, with a 12-month target price of $243, below where it’s currently trading. HLT is up 43% in 2024 through Dec. 12.
Who Is Brookfield and Why Does Ackman Care?
Brookfield is one of the world’s biggest alternative asset managers, with over $1 trillion in assets under management.
Its CEO, Bruce Flatt, is considered one of the finest managers anywhere. He’s been running the company since 2002. In that time, his shareholders have been extremely well rewarded—its shares are up nearly 3,000%—and Flatt’s become a billionaire.
One thing Brookfield is always looking to do is make itself and its affiliated subsidiaries more attractive to investors.
In 2020, its 45%-owned subsidiary, Brookfield Renewable Partners L.P. (NYSE:BEP), created Brookfield Renewable Corp. (NYSE:BEPC) so more institutional investors could invest in its renewable energy investments.
In October, Brookfield Asset Management (NYSE:BAM) announced that it would move its head office to New York from Toronto so that its stock would qualify for inclusion in U.S. stock indexes.
As part of the move, BAM will exchange its Class A shares on a one-for-one basis with Brookfield’s 73% equity interest in Brookfield Asset Management ULC. The move increases Brookfield Asset’s market cap nearly four-fold to $85 billion from $23 billion today.
Pershing More Than Doubles Down on Brookfield
Brookfield Asset Management’s move could be one reason Ackman decided to double down on Pershing’s Brookfield Corp. investment.
In the third quarter, the hedge fund added 25.9 million shares of Brookfield, upping its stake by nearly 378%. It now owns 32.7 million shares valued at $1.74 billion at the end of September, making it Ackman’s top holding at 13.36% of Pershing’s portfolio. The hedge fund first bought BN stock in the second quarter.
Brookfield focuses on delivering annual returns of 15% or more for shareholders in the years ahead. It plans to do that by buying good businesses, operating them at a high level, and generating above-average free cash flow, which it will use to buy more businesses and repeat the cycle.
With a five-year free cash flow growth rate of 20% and a 16% annualized return on capital over the same period, Brookfield believes it can get its shares to $176 by 2029, a three-fold increase from today.
Brookfield does an excellent job buying assets for reasonable prices, selling them for significantly more, and reallocating the proceeds to even better investments. It’s a virtuous circle that Ackman clearly appreciates.
Pershing is the eighth-largest shareholder in Brookfield. Analysts have a 12-month price target of $66.
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