William A. Ackman is the major investor, CEO and founder of Pershing Square Capital Management LP. Ackman is also co-investment manager of Gotham Partners LP, which he formed with his colleague, David Berkowitz, just after graduation. Ackman returned almost 30% in 2010. The New York Times describes Ackman’s investment strategy as such:
… 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.
According to the latest filings of Pershing Square Capital submitted to Edgar-Online, Ackman increased positions in five stocks and reduced positions in two stocks. I have examined these moves from a fundamental perspective, adding my O-Metrix Grading System where possible.
Company Name | Ticker | Shares Held | % Change | % of Portfolio | O-Metrix Score* |
Citigroup | 23.52 million | 60.32% | 13.44% | 7.43 | |
Family Dollar | 11.09 million | 92.47% | 10.10% | 5.52 | |
JC Penney | 38.71 million | 10.87% | 19.79% | 6.31 | |
Fortune Brands | 17.17 million | 3.01% | 18.01% | 3.16 | |
General Growth | 72.23 million | 0.60% | 18.04% | N/A | |
Kraft Foods | 22.23 million | -0.04% | 14.45% | 3.85 | |
Corrections Corp. | Sold Out!!! | -100% | 0 | 4.33 |
Data obtained from Finviz/Morningstar and is current as of Aug. 26. Click here for more information on O-Metrix Grading System. iFrame Graph link here.
Citigroup has been falling off the cliff for a while. The stock lost 21.84% in the last month and 27.15% in the last quarter. Pershing Square owns 23.52 million shares and increased its holdings by 60.32. Citibank is one the most volatile stocks in the market. It has a Beta of 2.51. It is trading with a low P/E ratio of 9.07 and a lower P/E ratio of 5.99. The recent sell-off panic affected the stock, driving it 42% lower than its 52-week high. However, if you believe in recovery, than Citibank is your stock. Based on an annualized EPS growth estimate of 11.17%, it has an O-Metrix score of 7.43.
Family Dollar lost 10.54% in a month and 14.12% in the last quarter. Ackman is pretty bullish on the company, increasing holdings by 92.47% in the last quarter. He invested 10.10% of the portfolio on Family Dollar. The company is trading with a trailing P/E ratio of 15.75 and a forward P/E ratio of 13.28. Dividend yield is 1.51%. It is a low beta stock with a beta of 0.26. Analysts estimate an annualized EPS growth of 14.48% for the next five years. Based on this estimate, it has a PEG ratio of 1.09 and an O-Metrix score of 5.52.
JC Penney lost 13.85% in the last month and 25.43% in the last quarter. The year-to-date return is -15.94%. It is the largest holding in Ackman’s portfolio and constitutes 19.79% of Pershing Square’s equity investments. Total share ownership stands at 18.15%. The company has a gross margin of 38.72%, but net profit margin falls to 2.15%. P/B, P/S, and P/C ratios stand at 1.21, 0.32, and 3.67, respectively. It is trading with a trailing P/E ratio of 16.58 and a forward P/E ratio of 11.76. Dividend yield is 3%. Based on 14.87% annualized EPS growth estimate, JC Penney has a PEG ratio of 1.11, and an O-Metrix score of 6.31.
Fortune Brands lost 8.40% in the last month and 14.02% in the last quarter. Year-to-date return is -8.23%. Pershing Square owns 17.17 million shares and increased its holdings by 3.01% in the last quarter. 18.01% of the portfolio is invested in Fortune Brands. Owning a market cap of $8.46 billion, FO has a P/E ratio of 25.01 and a forward P/E ratio of 15.83. Net profit margin is 6.95% and dividend yield is 1.39%. The company increased its earnings by 97.57% this year. It pays a yield of 1.39%. Based on 11.24% EPS growth estimate, Fortune Brands has a PEG ratio of 2.23 and an O-Metrix score of 3.16.
General Growth Properties was among the biggest losers of the recent panic. The stock lost 22.57% in the last month. The year-to-date return is -14.66%. Ackman is still bullish on the stock. He invested 18% of the portfolio on GGP. Analysts have a mean target price of $15.83, implying about 20% upside potential. Debt/Equity ratio of 1.91 is a red flag. While the yield of 3.07% is okay, the company has only 62 cents of cash per share. 52-week trading range is $10.63-17.43. It has a pretty high Beta of 3.61. If you believe in strong recovery, then this is your stock. Invest at your own risk.
Kraft Foods lost only 1.85% in the last month and managed to return 9.66% since January. Pershing Square owns 22.23 million shares, which constitutes 14.45% of its portfolio. Kraft is one of the best large-cap dividend payers with a yield of 3.42%. While debt/equity ratio of 0.76 is a red flag, P/B value of 1.52 is reasonable. It is trading with a P/E ratio 19.51 and a forward P/E ratio of 13.42. Based on 9.32% EPS growth estimate, Kraft has a PEG ratio of 2.09 and an O-Metrix score of 3.85.
Corrections Corporation of America lost 5% in the last quarter. Year-to-date return is -12.85%. Pershing Square sold out its holdings. Nashville-headquartered Corrections Corporation operates the correctional and detention facilities in the U.S. It has a gross margin of 31.34% and a net profit margin of 9.80%. EPS increased by 27% in the last past five years. Analysts estimate an annualized EPS growth of 12.33% for the next five years, which is conservative given the past performance. The mean target price of $29.80 implies almost 40% upside potential. It has an O-Metrix score of 4.33.
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Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in C over the next 72 hours.