In this article, we discuss the 8 best stocks to buy in 2023 according to Bill Ackman. To skip the detailed history of Bill Ackman and his hedge fund’s performance, go directly to the 4 Best Stocks to Buy in 2023 According to Bill Ackman.
Bill Ackman manages and owns the New York-based hedge fund Pershing Square Capital Management, better known as Pershing Square. Ackman received his Bachelors of Arts degree in Social Studies from Harvard in 1988, and in 1992, he completed his MBA from Harvard Business School. As of May 18, he has a net worth of $3.5 billion. Bill Ackman is an activist investor who is known for pressuring The Wendy’s Company (NASDAQ:WEN) to spin off Tim Hortons and being involved in a proxy battle with Canadian Pacific Railway.
Story of Ackman’s Success
Bill Ackman founded Gotham Partners with David P. Berkowitz in 1992. His initial success is owed to a thesis on MBIA Inc. (NYSE:MBI). At the time, MBIA Inc. (NYSE:MBI) was an AAA-rated company and Ackman questioned it. He wrote:
“Were the insurance company downgraded by even one notch (from AAA to AA+), even the company acknowledges its business could be materially impaired. In light of MBIA’s enormous leverage, the company’s credit quality, underwriting, transparency, accounting, and track record must be beyond reproach. In addition, and as importantly, the company must have minimal liquidity risk. Based on our research, we conclude that MBIA fails to meet these standards.
It appears to us that an actual or perceived downgrade of MBIA would have fairly draconian consequences to the company and create substantial drains on the company’s liquidity. The self-reinforcing and circular nature of the company’s exposures make it a poor candidate for a AAA rating.”
Moreover, Ackman placed short bets against the insurer believing that the company will default due to collateral debt obligations exposure, and faced a massive backlash, especially from the CEO of the company. By June 2008, MBIA Inc. (NYSE:MBI) lost its AAA rating, and Ackman’s firm Pershing Square was able to make $1.1 billion off of it.
The Great Financial Crisis proved to be a highly profitable time for Bill Ackman. In 2009, General Growth Properties filed for bankruptcy after its debt reached $27 billion and was unable to refinance it. Pershing Square was one of the firms that helped reorganize the company and in 2011, Ackman told Bloomberg that the effort “turned $60 million into $1.6 billion.”
Pershing Square’s Performance and Bets
Bill Ackman started Pershing Square Capital Management with $54 million. In the last 10 years, the hedge fund’s portfolio has gained close to 134% and in the last three years, the fund’s annualized average returns are at 12%. Despite the rough economic conditions, Pershing Square has returned 20.81% in the last 12 months according to Tipranks.
According to Pershing Square’s first quarter 2023 13F filings, the firm managed over $10.2 billion worth of 13F equity positions in eight stocks. The firm added Alphabet Inc. (NASDAQ:GOOGL) and Alphabet Inc. (NASDAQ:GOOG) to its portfolio. The Alphabet’s Class A and Class C shares account for over 10.4% of the company’s portfolio. Furthermore, it reduced holdings in three companies and made additional purchases in two.
The most noteworthy stocks in Pershing Square’s portfolio include Lowe’s Companies, Inc. (NYSE:LOW), Chipotle Mexican Grill, Inc. (NYSE:CMG), and Restaurant Brands International Inc. (NYSE:QSR).
We picked the top 8 stocks from the Q1 2023 13F portfolio of Bill Ackman’s Pershing Square Capital Management. The stocks have been ranked in ascending order of the hedge fund’s stake in them during Q1 2023.
Best Stocks to Buy in 2023 According to Bill Ackman
8. Alphabet Inc. (NASDAQ:GOOGL)
Pershing Square’s Q1 2023 Stake: $$226.650 million
Alphabet Inc. (NASDAQ:GOOGL) is one of the Big Five American tech corporations. The ticker symbol GOOGL represents the Class A shares of the company. The Class A shareholders have voting rights in the company. Pershing Square Capital Management initiated a position in Alphabet Inc. (NASDAQ:GOOGL) in the first quarter of 2023 with 2.185 million shares worth $226.650 million representing 2.21% of the hedge fund portfolio.
Alphabet Inc. (NASDAQ:GOOGL) presented its Google I/O ’23 conference on May 10 where it announced the removal of the waitlist for its artificial intelligence chatbot, Bard. The company made it available in over 180 countries. At the conference, Alphabet Inc. (NASDAQ:GOOGL) revealed several other product launches including its new Android device, Google Pixel 7a. Since the conference, the company’s Class A shares have been up by nearly 10% at the time of writing.
Alphabet Inc. (NASDAQ:GOOGL) is a significant addition to Pershing Square’s portfolio along with the likes of Lowe’s Companies, Inc. (NYSE:LOW), Chipotle Mexican Grill, Inc. (NYSE:CMG), and Restaurant Brands International Inc. (NYSE:QSR).
7. Alphabet Inc. (NASDAQ:GOOG)
Pershing Square’s Q1 2023 Stake: $839.256 million
The ticker symbol GOOG represents Alphabet Inc. (NASDAQ:GOOG)’s Class C shares which have no voting rights. In Q1 2023, the company’s Class C shares represented 8.21% of Pershing Square’s 13F portfolio as the firm initiated its position in Alphabet Inc. (NASDAQ:GOOG) with 8.07 million shares, worth $839.256 million.
On May 11, Jefferies analyst Brent Thill described the recent Google I/O conference as “one of the most substantial in years,” and said that it “presented a much more coherent message about its generative AI strategy.” Thill maintains a Buy rating on Alphabet Inc. (NASDAQ:GOOG)’s shares with a $130 price target.
Diamond Hill Capital made the following comment about Alphabet Inc. (NASDAQ:GOOG) in its Q1 2023 investor letter:
“We did have several strong performing stocks this quarter. Our top contributors to return included NVR, Amazon, Alphabet Inc. (NASDAQ:GOOG), Microsoft and Booking Holdings, all of which posted double-digit gains. Shares of media and technology giant Alphabet outperformed as the company announced expense discipline while continuing to invest in its core products of Google Search, YouTube and Google Cloud.”
6. Canadian Pacific Kansas City Limited (NYSE:CP)
Pershing Square’s Q1 2023 Stake: $1.172 billion
Canadian Pacific Kansas City Limited (NYSE:CP) was created with the merger of Canadian Pacific Railway and Kansas City Southern on April 14, 2023. It is the first railroad company that connects Canada, Mexico, and the United States. In the first quarter of 2023, Pershing Square Capital Management held 15.238 million shares of Canadian Pacific Kansas City Limited (NYSE:CP) worth $1.172 billion, covering 11.47% of the hedge fund’s portfolio.
On April 26, Canadian Pacific Kansas City Limited (NYSE:CP) posted its Q1 2023 results which were quite solid despite the headwinds in the freight business and performed better than most of its peers. The company generated a revenue of C$2.27 billion, marking an increase of 23.4% year-over-year, and reported an EPS of C$0.90 which was 2 cents lower than estimated. On the same day, Canadian Pacific Kansas City Limited (NYSE:CP) also declared a C$0.19 per share quarterly dividend (in line with the previous) payable by July 31 to the shareholders of record on June 30.
On May 16, Argus analyst John Eade upgraded Canadian Pacific Kansas City Limited (NYSE:CP)’s shares from Neutral to Buy in light of the merger of the two railroad companies with a $92 price target.
Brasada Capital Management made the following comment about Canadian Pacific Kansas City Limited (NYSE:CP) in its Q1 2023 investor letter:
“We have owned Canadian Pacific Kansas City Limited (NYSE:CP) for about 2 years and we increased the size of our position during the quarter. On March 15th, the Surface Transportation Board (STB) approved CP’s merger with Kansas City Southern (KCS). This was the first Class 1 Railroad merger since Canadian National acquired Illinois Central in 1999. This will also be the last major railroad merger as any future combinations would not be able to gain approval from the STB. CP/KCS will be the only single-line railway connecting Canada to Mexico. It creates new rail options for shippers, and the company expects it to shift 64,000 truckloads from road to rail.
Keith Creel is the CEO of CP and he actually worked at Illinois Central when it was acquired by Canadian National. Creel is the protégé of Hunter Harrison, who was the Bill Walsh of railroading. Just as Walsh created the famous West Coast offense. Harrison created Precision Scheduled Railroading (PSR) and implemented it at several Class I railroads. Creel was with Harrison at Illinois Central, Canadian National, and he succeeded him as CEO at CP. CP has thrived under Creel’s leadership, and we believe there is an enormous amount of value that he can create with KCS. A picture is worth a thousand words and below is the new CP/KCS map.”
5. The Howard Hughes Corporation (NYSE:HHC)
Pershing Square’s Q1 2023 Stake: $1.278 billion
The Howard Hughes Corporation (NYSE:HHC) is a Texas-based real estate development company that focuses primarily on master-planned communities and also develops other commercial and residential properties.
Despite the slowdown in the housing market due to increasing interest rates, The Howard Hughes Corporation (NYSE:HHC) is relatively stable. The company’s total operating assets Net Operating Income (NOI) increased from $227 million in 2021 to $239 million in 2022. According to The Howard Hughes Corporation (NYSE:HHC)’s first-quarter earnings report, the company’s total operating assets NOI increased by 3% YoY to $59 million.
Bill Ackman’s Pershing Square Capital Management was the most prominent shareholder of The Howard Hughes Corporation (NYSE:HHC) in Q1 2023 with over 15.98 million shares worth over $1.278 billion. The company represented 12.51% of the hedge fund’s portfolio.
Lowe’s Companies, Inc. (NYSE:LOW), Chipotle Mexican Grill, Inc. (NYSE:CMG), and Restaurant Brands International Inc. (NYSE:QSR) are some of the prominent names in Pershing Square’s 13F portfolio in addition to The Howard Hughes Corporation (NYSE:HHC).
Bernzott Capital Advisors made the following comment about The Howard Hughes Corporation (NYSE:HHC) in its Q4 2022 investor letter:
“The Howard Hughes Corporation (NYSE:HHC): The real estate developer’s master planned community results were better than expected amid fears of a housing slowdown, and stabilizing interest rates eased pressure on the stock from earlier in the year. Pershing Square, a significant shareholder, tendered to purchase more shares during the quarter, highlighting value.”
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Disclosure. None. 8 Best Stocks to Buy in 2023 According to Bill Ackman is originally published on Insider Monkey.