Billionaire investor Bill Ackman (Trades, Portfolio), head of Pershing Square Capital Management, is known for taking large positions in a handful of underperforming companies and pushing for change in order to unlock value for shareholders.
While his New York-based hedge has found success in recent years with Chipotle Mexican Grill Inc. (CMG, Financial) and Starbucks Corp. (SBUX, Financial), one of its most well-known activist targets, which did not end favorably, was Valeant Pharmaceuticals. Ackman also pursued an unsuccessful short of Herbalife Nutrition Ltd. (HLF, Financial), which he bowed out of in 2018.
In the current environment of high inflation, rising interest rates and geopolitical uncertainty, many investors are likely looking for opportunities to take advantage of. As a result, they may be interested in some of the stocks in the guru’s $10.82 billion equity portfolio that are undervalued according to an earnings-based discounted cash flow model.
GuruFocus portfolio data, which is based on 13F filings as of June 30, shows current positions in Ackman’s equity portfolio that have a solid margin of safety and high predictability are Lowe’s Companies Inc. (LOW, Financial), Canadian Pacific Kansas City Ltd. (CP, Financial) and Alphabet Inc. (GOOGL, Financial)(GOOG, Financial).
Investors should be aware 13F filings do not give a complete picture of a firm’s holdings as the reports only include its positions in U.S. stocks and American depository receipts, but they can still provide valuable information. Further, the reports only reflect trades and holdings as of the most-recent portfolio filing date, which may or may not be held by the reporting firm today or even when this article was published.
Lowe’s Companies
Shares of Lowe’s Companies (LOW, Financial) are trading at a 28% discount to their fair value of $317.50 according to the earnings-based DCF model.
The Mooresville, North Carolina-based retail company, which operates a chain of home improvement stores, has a $132.42 billion market cap; its shares were trading around $229.45 on Wednesday with a price-earnings ratio of 22.58 and a price-sales ratio of 1.49.
The GF Value Line suggests the stock is fairly valued currently based on its historical ratios, past financial performance and analysts’ future earnings estimates.
At 93 out of 100, the GF Score indicates the company has high outperformance potential, driven by solid ranks for profitability, growth and momentum and more moderate value and financial strength ranks.
Lowe’s also has a predictability rank of five out of five stars. GuruFocus research found companies with this rank return an average of 12.1% annually over a 10-year period.
Of the gurus invested in Lowe’s, Ackman has the largest stake with 1.27% of its outstanding shares. Ken Fisher (Trades, Portfolio), Tom Gayner (Trades, Portfolio), Elfun Trusts (Trades, Portfolio), Ron Baron (Trades, Portfolio), Ray Dalio (Trades, Portfolio)’s Bridgewater Associates and PRIMECAP Management (Trades, Portfolio) also have notable positions in the stock.
Canadian Pacific Kansas City
Generating a DCF fair value of $101.26, shares of Canadian Pacific Kansas City (CP, Financial) are trading with a 22.62% margin of safety.
The Canadian railroad operator, which now has a rail network that spans Canada, the U.S. and Mexico following the acquisition of Kansas City Southern, has a market cap of $72.54 billion; its shares were trading around $78 on Wednesday with a price-earnings ratio of 22.81, a price-book ratio of 2.46 and a price-sales ratio of 9.67.
According to the GF Value Line, the stock is fairly valued currently.
The GF Score of 82 implies the company has good outperformance potential. While Canadian Pacific received high ratings for profitability and momentum, the financial strength, value and growth ranks are more moderate.
The company also has a 2.5-star predictability rank. GuruFocus says companies with this rank return, on average, 7.3% annually.
With 1.62% of its outstanding shares, Ackman is the company’s largest guru shareholder. Other top guru investors of Canadian Pacific Kansas City include Baillie Gifford (Trades, Portfolio), Fisher, Stanley Druckenmiller (Trades, Portfolio) and Dalio’s firm.
Alphabet
Yielding a 7.81% margin of safety, Alphabet’s (GOOGL, Financial) Class A stock is trading below its DCF value of $147.50. The Class C stock (GOOG, Financial) is trading at a 7.31% discount.
The communications services company headquartered in Mountain View, California, which owns the Google search engine, YouTube and a number of other businesses, has a $1.72 trillion market cap; its Class A shares were trading around $136.29 on Wednesday with a price-earnings ratio of 28.88, a price-book ratio of 6.44 and a price-sales ratio of 6.19. Its Class C shares traded around $136.72.
Based on the GF Value Line, the stock appears to be fairly valued currently.
Supported by high ratings for four of the criteria and a more moderate value rank, the GF Score of 97 means the company has high outperformance potential.
Alphabet also has a 4.5-star predictability rank. GuruFocus research shows companies with this rank return an annual average of 10.6%.
Fisher is Alphabet’s largest guru shareholder with a 0.34% stake. The stock is also being held by PRIMECAP Management (Trades, Portfolio), Dodge & Cox, the Harbor Capital Appreciation Fund (Trades, Portfolio), Philippe Laffont (Trades, Portfolio), Bill Nygren (Trades, Portfolio) and several other gurus.
