Herbalife Isn’t the Only Stock With an Ackman-Tilson Connection
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Billionaire Bill Ackman runs a niche equity portfolio, owning only around 10 stocks at a time. Ackman is a long-term activist and value investor, and is the founder of Pershing Square Capital. Ackman's long-time friend Whitney Tilson received an MBA from Harvard and founded T2 Partners in 1999, which has returned a cumulative 175% since inception. We have found five stocks that Ackman and Tilson either love or hate (check out Whitney Tilson's top picks). Enjoy.
Howard Hughes (NYSE: HHC) is both Ackman and Tilson's eighth largest 13F holding. The real estate developer is a spin-off of General Growth Properties following its emergence from bankruptcy. Ackman, along with Brookfield Asset Management and Fairhome Capital, teamed up to bring General Growth out of bankruptcy, defeating a rival bid from Simon Property Group. General Growth is now the U.S.'s second largest shopping mall. Tilson is also an owner in Brookfield, while Ackman owns General Growth. The properties owned by Howard Hughes are not well suited for a REIT structure given they need significant developing. As a result, the assets are considered hard to value, but Tilson places a valuation range on the shares between $67 and $125, per his presentation at this year's Value Investing Congress. Billionaire John Paulson is also one of Howard Hughes' big-name investors (check out John Paulson's top picks).
Alexander & Baldwin (NYSE: ALEX) is another real estate company, one that operates in the commercial and agriculture segment. Alexander is Ackman's 10th largest 13F holding after dumping 60% of his stake last quarter, and Tilson has sold off his entire stake. Alexander has a focus toward Hawaiian real estate, with other operations that include a sugar plantation and a renewable energy generation. The real estate company's unique portfolio makes it tough to find suitable comparables, but we believe that its 100x plus P/E puts it in overvalued territory. It also appears that Howard Hughes has a robust Hawaiian real estate portfolio, one that Ackman and Tilson prefer to Alexander's.
J.C. Penney (NYSE: JCP) is one of Ackman's largest holdings and 5th in his 13F portfolio, but Tilson sold off all his shares last quarter. Recent issues include the retailer's strategy to focus on low prices, as opposed to coupons. Analysts expect the new strategies to start yielding results in FY2014. In the interim, same store sales are expected to be down 20% in FY2013 and the stock was down near 40% in 2012, but still trades above other struggling retailer Sears - at 0.4x sales compared to Sears' 0.1x.
Citigroup (NYSE: C) had Ackman dumping all of his shares last quarter, but Tilson upped his stake in the bank by over 500%. Citi's revenues are expected to be up 8% in 2013, after two straight years of decline. Recent 3Q results were strong with loan growth of 11% year over year, which is faster than many U.S. peers. Net charge-offs were also down 12% year over year during 3Q, but the stock still trades at only 0.6x book value.
The two fund managers' most recent market-moving news has been short positions in Herbalife (NYSE: HLF). Ackman has laid out his allegations in a detailed presentation - 350 pages - one that Tilson calls "the most remarkable piece of investment analysis I have ever seen." Herbalife has planned an analyst and investor meeting on January 10 to rebut Ackman's accusations that the company is a pyramid scheme.
Worth noting is that Herbalife has managed to beat EPS expectations in each of the last four quarters and the stock trades on the cheap side at only 9x earnings, compared to 11x for Nu Skin, which has also come under pressure lately. We would remain cautious in the interim and wait to see the company's rebuttal on January 10th, possibly expecting an announcement of share repurchases assuming the company feels strongly enough that its stock has been unfairly driven down. Billionaire investor and founder of SAC Capital - Steven Cohen - dumped his entire Herbalife stake last quarter (check out Steven Cohen's top picks).
To recap: it appears that both Ackman and Tilson are still bullish on Howard Hughes, and both are bearish on Alexander. They are also both heavily bearish on Herbalife, but their opinions differ when it comes to J.C. Penney and Citi. Ackman still loves J.C. Penney, while Tilson dumped all of his shares last quarter. Tilson, meanwhile, still holds Citi, but Ackman fell out of love last quarter.
This article is written by Marshall Hargrave and edited by Jake Mann. Insider Monkey's Editor-in-Chief is Meena Krishnamsetty. Meena has a long position in Citigroup. The Motley Fool owns shares of Citigroup Inc and Howard Hughes. 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!