William A. Ackman is the major investor, CEO and founder of Pershing Square Capital Management LP. William Ackman is also co-investment manager of Gotham Partners LP, which he formed with his colleague, David Berkowitz, just after graduation. As of December 31, Pershing Square invested $5.84 billion in U.S. securities. Primarily, his investments are in financials (12%), consumer services (29.4%), consumer goods (32.3%) and industrials (4.5%). His last stock pick gained 72.3% over the last six months.
According to The New York Times, William Ackman believes that “being in the spotlight is often essential to his investing strategy, which usually involves taking concentrated bets either in or against a company’s stock. If he discovers some undervalued business, he can pick up the phone and become a meaningful owner.’’
Here is a brief analysis of Ackman’s top 10 equity holdings as of December 31, 2010, with thoughts on their market beating potential:
J.C. Penney Company Inc. (JCP): Texas-based JCP operates department stores in the U.S. and Puerto Rico. The company operated 13 merchandise distribution centers, four direct fulfillment centers and five regional warehouses. With a market cap of $8.84 billion, the company has a trailing ratio of 24.34 and a forward P/E ratio of 16.09. Net profit margin in 2010 was 2.13%, while the company yielded a 2.13% dividend. This year’s earnings increased by 48.68%. BMO Capital suggested an outperform rating for JCP, whereas Argus, Citigroup and Deutsche Securities recommend buying. In February J.C. Penney issued a share purchase program for up to $900 million.
General Growth Properties Inc. (GGP): GGP is a real estate investment trust in the U.S. operating in two segments. RBC Capital suggested an outperform for GGP, while UBS recommends staying neutral. GGP’s market cap is $16.10 billion, and the company has a forward P/E ratio of 15.90. Net profit margin is -29.53%, and dividend yield is 2.40%. The company increased its earnings by 85.93% this year. Although the company had a pretty good dividend record until the middle of 2008, payments busted up since then. Moreover, its total and long-term debts are not really clean-cut. Debt-to assets ratio is around 55%. It does not look like a safe investment for the long term.
Fortune Brands Inc. (FO): Fortune Brands is in the business of manufacturing, producing and selling home and security products, distilled spirits and golf products. Owning market capital of $9.92 billion, FO has a P/E ratio of 20.59, and a forward P/E ratio of 17.22. Net profit margin is 6.95%, and dividend yield is 1.17%. The company had a whopping EPS growth of 638.31% this quarter, as well as increasing its earnings by 97.57% this year. Insider transaction has grown 31.00% during the last six months. The company cut dividends from 44 cents to 19 cents. Its total and long-term debts are not very optimistic, it might be better to stay in a neutral position with the Illionis-based company.
Citigroup Inc. (C): Citigroup operates as a financial services company providing a range of financial products and services, operating in about 160 countries. With a market cap of $130.74 billion, the company has a P/E ratio of 14.48, and a forward P/E ratio of 8.47. Oppenheimer has an outperform rating for Citigroup, while Deutsche Securities, Ladenburg Thalmann and Punk, Ziegel & Co recommend buying. Net profit margin was 12.03% last year. Analysts expect the company to have 29.27% EPS growth next year, and earnings increased by 146.61% this year. Insiders have been buying C stock for a while. David Tepper is also bullish about Citi.
Kraft Foods Inc. (KFT): Kraft is the largest confectionery, food and beverage corporation, and is headquartered in Illinois. It markets a variety of brands in more than 155 countries. The market capital of KFT is $59.26 billion, and P/E ratio is 23.8. Its forward P/E ratio is 13.5. Net profit margin is 5.07%, and dividend yield is 3.43%. Gross profit margin stands at 36.38%. Analysts estimate that the company will have 8.75% EPS growth in the next five years. KFT has a good dividend record, while its debts are slowly going down. KFT could be a good pick as a safe investment for the long run.
Target Corp. (TGT): Operating general merchandise and food discount stores in the U.S., Target offers household essentials, toys, jewelry, shoes and seasonal merchandise. TGT operated 1,740 stores in approximately 50 states as of Jun 2, 2010. Bernstein and Robert W. Baird suggested an outperform rating for TGT, while MKM Partners, UBS, Citigroup and Jefferies & Co recommend buying. TGT’s market cap is $33.82 billion, P/E ratio is 12.17, and forward P/E ratio is 10.5. Net profit margin in 2010 was 4.33%, while the company paid a 2.05% dividend. Gross profit margin stands at 30.88%. EPS is expected to increase by 11.99% in the next five years. Analysts give a 1.90 recommendation for TGT (1=Buy,5=Sell).
General Motors Company (GM): GM is a worldwide automaker headquartered in Detroit, Michigan. GM has a market cap of $50.23 billion, and an extremely low P/E ratio of 5.78, while forward P/E ratio is 6.36. Net profit margin is 3.74%, while the company increased its earnings by 101.57% this quarter. Gross profit margin stands at 12.17%. With a PEG value of 0.39 and a P/S value of 0.37, GM seems to be a good undervalued stock to pick. While one might think Toyota (TM) is the biggest threat, GM’s disagreement with its unions can significantly affect the stock’s potential.
Corrections Corporation of America (CXW): The Tennessee-based CXW operates about 65 privatized correctional and detention facilities in the U.S. Corrections Corporation has a market capitalization of $2.71 billion and a trailing ratio of 17.83, while forward P/E ratio is 16.2. The company had a 27.35% EPS growth during the last five years. Net profit margin is 9.41%. Gross profit margin stands at 30.52%, and operating profit is 19.29%. The company doesn’t have a dividend policy. Given its business area, it is an interesting stock in the market.
The Howard Hughes Corporation (HHC): HHC manages, develops and leases residential, commercial and mixed-use real estate. Owning a market cap of $2.47 billion, the company had 90.12% EPS growth this year, while analysts expect 200% more in the next. Gross profit margin stands at 55.72%, and operating profit is -398.79%. HHC has a SMA20 ratio of 0.17%, while SMA50 is 0.89%. Insiders own 2.82% of the shares, and they increased their holdings by 15.85% in the last six months. This is a company to watch.
Automatic Data Processing Inc. (ADP): ADP, based in New Jersey, provides tech-based solutions to employers, vehicle retailers and manufacturers across the globe. RBC Capital and Bernstein suggested an outperform rating for ADP, while Stifel Nicolaus and Argus recommend buying. With a market cap of $27.15 billion, the company has a trailing ratio of 23.58, and a forward P/E ratio of 20.41. Net profit margin is 12.72%, and ADP paid a 2.63% dividend last year. The company had 12.62% EPS growth during the last five years. Its SMA20 and SMA50 ratios are 3.49% and 7.06%, respectively. Year by year, ADP is increasing its yields. Moreover, the company has almost no debts. ADP seems like a perfect stock to pick in the first market correction. RBC and Barclays have a target of $60.
Disclosure: I am long C.