6 Holdings Pershing's Bill Ackman Has Recently Increased

|
Includes: ALEX, BEAM, FDO, GGP, JCP, MDLZ
by: Investment Underground

Managing over $5.7 billion at Pershing Square Capital, Bill Ackman’s ability to move markets and have a meaningful impact on the prices of given stocks is significant. One tool available to investors that may allow one to discern meaningful market trends is to track the trading activities of funds like those managed by Mr. Ackman. While these are often after-the-fact pictures of the trades made by whichever investor one is tracking, given the size of their positions, this activity can give one insight into their opinions.

Family Dollar (NYSE:FDO) – As of the end of the first quarter of 2011, Mr. Ackman added to his holding of FDO, increasing his position size at an estimated average purchase price of $47.53 per share. This resulted in a portfolio weight for FDO of 5.17%. When the purchase was announced, Mr. Ackman stated that he saw a potential for as much as 70% upside in the trade, placing a price target of $92 on the shares. He cited net sales figures of $2.2 billion and earnings per share of $0.98, which was double that of the second quarter a year earlier. Mr. Ackman was also encouraged by a 37% return on investment and the fact that there was strong growth potential in the chain’s 20,000 stores, each of which are smaller than those of competitor Wal-Mart (NYSE:WMT). Those critical of the purchase pointed out that FDO has net sales per square foot of $168 relative to $199 per square foot for Dollar General (NYSE:DG). Also that FDO has the lowest net profit margin in its space at 4.6%, where Dollar Tree (NASDAQ:DLTR) comes in first at a profit margin of 6.8%.

Fortune Brands (FO) – As of the end of the fourth quarter of 2010, Mr. Ackman added to his holding of FO, increasing his position size at an estimated average purchase price of $57.75 per share. This resulted in a portfolio weight for FO of 9.5%. Subsequent trades have left Mr. Ackman’s position at a portfolio weight of 3.29%. Mr. Ackman became the company’s largest shareholder eleven months before it announced its intention to split into three subsidiary companies across its three primary business lines: liquor, golf products, and home & security. The best comparison in the liquor segment is Diageo PLC (NYSE:DEO). On a relative basis, FO is attractive on a price-to-earnings and a price-to-earnings over growth basis: 14.4 versus 15.8 and 1.2 versus 1.5 respectively. Potential investors should look for the pared down firm to be more competitive with just the high margin liquor business; currently it trails with an operating margin of 12.1% relative to 28.5% for DO.

Alexander & Bladwin, Inc. (NYSE:ALEX) – As of the end of the first quarter of 2011, Mr. Ackman added to his holding of ALEX, increasing his position size at an estimated average purchase price of $41.55 per share. This resulted in a portfolio weight for ALEX of 2.7%. Having been publically quoted as having great optimism in the pending recovery of the U.S. real estate market, Mr. Ackman has increased his holding in a select few real estate driven companies, including ALEX. The company operates in three segments: real estate, agribusiness, and transportation. Students of the company are of the belief that the company is undervalued as an aggregate because the various segments are not well managed or a good fit with one another. Mr. Ackman, who has a reputation as an activist investor, will likely push for a spinoff of one, or more, of the divisions to maximize the company’s value.

Kraft Foods, Inc. (KFT) – As of the end of the first quarter of 2011, Mr. Ackman added to his holding of KFT, increasing his position size at an estimated average purchase price of $31.21 per share. This resulted in a portfolio weight for KFT of 1.52%. While KFT looks expensive on a price-to-earnings relative to competitors General Mills (NYSE:GIS) and Kellogg’s (NYSE:K) – readings of 19.5 for KFT, 13.3 for GIS, and 15.6 for K – on a price-to-earnings over growth (PEG) basis, KFT has the most attractive metric (1.55, 1.79, and 1.76 respectively). This may be a challenging market segment moving forward giving that large pricing pressure put on these companies commodity prices that remain elevated. If this condition persists, the true pricing power of each company will be tested, as will consumer loyalty.

General Growth Properties, Inc. (NYSE:GGP) – As of the end of the first quarter of 2011, Mr. Ackman added to his holding of GGP, increasing his position size at an estimated average purchase price of $15.12 per share. This resulted in a portfolio weight for GGP of 0.50%. This company has gotten significant press over the past several months as it worked to meet challenges around bankruptcy, but it has emerged strongly, and is now an attractive income play with a dividend yield that has flirted with 3% recently. Despite the company’s negative earnings per share, it has an attractive price-to-earnings over growth (PEG) level of 0.8, particularly relative to competitor Simon Property Group (NYSE:SPG).

J.C. Penney Company, Inc. (NYSE:JCP) – As of the end of the fourth quarter of 2010, Mr. Ackman added to his holding of JCP, increasing his position size at an estimated average purchase price of $32.48 per share. This resulted in a portfolio weight for JCP of 10.63%. Mr. Ackman has been quoted praising J.C. Penney “because of its inexpensive valuation, strong brand name and assets, and well-deserved reputation for overseas sourcing, high quality systems, and large in-house brands.” Despite Mr. Ackman’s appreciation, competitor Kohl’s Corp. (NYSE:KSS) looks like a better value on a price-to-earnings and an operating margin basis (12.7 for JCP and 16.1 for KSS, and 4.9% for JCP and 10.4% for KSS). These stronger metrics are present even though KSS has significantly outperformed JCP over the past six months – KSS is down 10%, while JCP is down over 25%. Given these metrics and the price action, KSS looks to be a more attractive option.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.