Three Big Buys and Two Big Sells By Bill Ackman
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Pershing Square Capital Management is an activist hedge fund founded and managed by Bill Ackman. The firm employs a fundamental analysis approach to investing. Ackman invests in equity and fixed income markets, as well as derivative instruments. The hedge fund maintains an outstanding record of 24% in average annualized returns since its establishment in 2004. Mr. Ackman is known for having grown his funds from $6.7 billion to $10.3 billion in 2008 in a short span of four months. This growth had materialized through the superior management ability of Mr. Ackman, and not via new investments.
Ackman's Pershing Square Capital Management had $8.9 billion assets under management at the end of the latest quarter. As Bill Ackman is one of the top investment managers in the business, it is worthwhile investigating his recent moves. Here, I looked at 3 big buys and 2 big sells by the investment guru. The hedge fund's big buys for this period are Procter & Gamble (NYSE: PG), Burger King Worldwide (NYSE: BKW), and Matson (NYSE: MATX). Its significant sells are Citigroup (NYSE: C) and Alexander & Baldwin (NYSE: ALEX). I investigated these stocks from a fundamental perspective to see whether it is worth to consider them or not.
Procter & Gamble is a manufacturer and seller of consumer goods in the following segments - beauty, grooming, health care, fabric care and home care, and baby care and family care. The company had recently entered into a deal with Hewlett-Packard for the latter to provide an application service support for efficient management of its supply chain operations. Meanwhile, the consumer giant is now aiming for simplified messages in its ad campaigns in an effort to continue achieving high market shares in developing markets and further boost its position in developed ones. The company, which spends billions of dollars in marketing, has recently announced Argentinean soccer player Lionel Messi is its newest addition to the Head & Shoulders family.
Pershing further increased its position in PG in the third quarter. The amount of PG shares represented 21.71% of the hedge fund's total holdings. Ackman had just initiated his position in the company in the previous quarter.
The stock price rose by 6.11% from a year ago. Although the earnings had fallen this year by 19.10% and sales continue to slide recently, the prospects are still encouraging. The EPS long term annual growth estimate is 8.31%. Furthermore, PG is also one of Pershing's top dividend stocks with a yield of 3.28%. The company continues to pay increasing dividends to its investors. However, if the consumer goods giant can sustain this or not rests on its ability to raise dividends. P&G's payout ratio had gone up to 68.24% from a mere 43.93%.
Burger King Worldwide is a Miami-based operator and franchiser of fast food hamburger restaurants in the US and many other countries. As of the end of June 2012, it had 818 restaurants and 11,786 franchised restaurants all over the world. The company is recently testing home delivery service in a set of huge cities. After its success in Miami, Houston, and Washington, D.C., it is expanding its test in New York City.
The hedge fund initiated a large position in BKW in the latest quarter. The 38.361 million shares that Pershing bought were worth around $534 million. This holding formed 5.99% of the hedge fund's total portfolio.
The stock had gained 9.82% from the past year. Despite the dismal revenue performance, its earnings prospect is robust. In fact, the EPS is seen to grow by an impressive 21.50% each year in the long term. Investors can also benefit from a possible 20.30% growth in earnings in the year ahead. Future earnings growth will rely on whether or not the company's recent delivery programs will materialize into higher revenues.
Matson is an ocean transportation and logistics company operating in the United States. Its shipping services cover Hawaii, Guam, and the Micronesia islands. The Honolulu-based company also offers expedited service from China to southern California. The company had a strong performance in the latest quarter. It reported net income of $19.1 million, more than twice that for the same period in 2011 at $8.7 million. Earnings also grew to $0.45 per diluted share, which for the previous year was merely $0.21.
Pershing Square initiated a position in Matson in the end of the third quarter. The purchase amounted to around $107 million, or 1.21% of the hedge fund's total portfolio. The stock had lost 16.01% from the previous year, while EPS contracted by 21.24% this year. Nonetheless, earnings look better in the years to come as these are estimated to grow at 8.93% each year. The company's profit margin at the end of the third quarter is an encouraging 4.76%, higher than that for the same period in 2011 at 2.29%. Also, investors can now earn income as the company now pays its investors dividends with its high yield of 2.72%.
Alexander & Baldwin is a Honolulu-based developer and seller of real estate properties. The company is a former subsidiary of Matson, Inc. Like Matson, the company exhibited a strong third quarter as its income rose to 13.4 million, significantly higher than that for the third quarter last year at $4.4 million. The earnings also went up to 31 cents per diluted share from merely 10 cents in the previous year. Revenues reached $92.9 million, also higher than last year's $61.9 million.
Pershing sold more than half of its position in ALEX in the latest quarter. This is the first time that the hedge fund made a sell within at least 8 quarters. The resulting shares represented 0.47% of the firm's total portfolio.
The stock had gained 41.23% from the past year. Also, the earnings have massively grown this year by 728.51% and are estimated to further grow by 31.80% in the next. This growth, however, may be short-lived because the long term growth estimate is a more conservative 7.50%. Nevertheless, the company remains interesting with its robust revenue growth and improving profit margin.
Citigroup is a provider of financial products and services to various clients worldwide. It operates through Citicorp and Citi Holdings. The New York-based company serves around 200 million customer accounts and operates in 160 countries and territories. As of the end of 2011, the company had 4,200 retail bank branches all over the world.
Earlier this year, Citigroup announced a retrenchment program that seeks to slash 5,000 jobs. The most recent news regarding this matter is the announcement of 100 job cuts on New York's Long Island. Meanwhile, a call for a breakup of the giant company has been proposed by a group of investors who claimed that the company had underperformed since the 2008 financial meltdown.
Bill Ackman finally sold all his Citigroup shares at the end of the third quarter. The company has been a favored stock by his hedge fund for the past couple of years. The firm started selling substantial portions of its stake in the financial company in the previous quarter.
Recently, the stock price has been showing a robust performance. It had gained an incredible 36.11% from last year. Earnings are expected to grow at an annual rate of 11.80%. However, there are concerns over Citigroup's dismal sales performance. In the past 5 years, sales have contracted by 4.94% each year. The dividend, however, remained stable in the previous quarters, but it has not increased since 2009. Citigroup's profit margin in the end of the latest quarter was 2.45%, which is way below that for the same period last year at 14.02%.
ecofinstat has no positions in the stocks mentioned above. The Motley Fool owns shares of Citigroup Inc. Motley Fool newsletter services recommend Burger King Worldwide and The Procter & Gamble Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!