Bill Ackman is happy to buy stocks when he believes they are on sale, and he will hold them until their prices reflect what he believes to be their true value. It could be a few months or it could be ten years. For example, Ackman started a position in Chipotle Mexican Grill more than eight years ago, and has grown to become one of the largest holdings in the portfolio of his hedge fund, Pershing Square.
In the last two quarters, Ackman has built two key positions for Pershing Square — Nice(NYSE: NKE) and Brookfield(NYSE: BN) — collecting an estimated $2.2 billion in those taxes during the third quarter alone. Here’s why.
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Ackman bought about 275 million dollars of Nike’s stock in the second quarter of the calendar, but he carried it in the third quarter of the calendar after receiving Nike’s 2024 fourth quarter earnings and 2025 financial outlook that disappointed the market back in late June 2024. Ackman added. 13.2 million shares, spending more than $1 billion based on average share price during the quarter.
Nike has struggled recently as it tries to figure out what share of direct-to-consumer sales it should be for overall sales. Cutting the distribution is more due to its stores and the website worked in some places but it is not working anymore recently and it is forcing the management to adjust. As a result, there was an over-time drop in revenue as its sales through major retailers became difficult while Nike switched inventory to its own. Sales came in better than expected and revenue rose 10% year over year in Nike’s fiscal 2025 Q1. In reporting the results, management has led to a slight recovery in sales due to economic uncertainty.
It is important to mention, however, that the gross margin improved by 1.2 percentage points in fiscal Q1 on the back of improved product and operating efficiency and cost improvement capabilities. As Nike improves its management and returns to sales growth, it should see strong improvements in both gross margin and operating margin over time.
Nike’s price-to-sales ratio of 2.3 is near a ten-year low. And while sales are going in the wrong direction, there is good reason to believe that things will turn around. Nike has one of the strongest brands in the world, China still provides an opportunity for the growth of its business, and it has managed to maintain its original prices. With earnings growth expected to resume later this year, Nike may be a good stock to buy now and hold for several years as it works through its business transformation.
Brookfield is an investment company with hands in many different businesses. It has a very strong track record, generating an average annual return of 18% for its shareholders over the past 30 years.
Ackman carried $285 billion of stock in the second quarter and added $1.2 billion in the third quarter. Due to strong price performance since Ackman’s purchase, Brookfield is now Pershing Square’s largest stock position.
The company started a property management business last year, but retains 75% ownership in it. It also runs an insurance business (wealth solutions), and has several businesses across real estate, renewable energy, business services, and real estate. Brookfield expects to continue to grow the portfolio over the next few years.
It seeks to buy companies where it believes it can unlock additional value through operational and financial improvements. It does that by taking cash flow from its existing operations and moving it wherever it sees investment opportunities.
Management expects its free cash flow growth over the next five years to increase at a rate of 20% per year. If the estimate proves to be true, that will result in an increase of 47 billion dollars of free cash flow at that time, which plans to save 75% (75 billion) of distribution to new funds. The rest, it aims to invest in share repurchases and dividends.
Shares currently trade at up to 15 times earnings per share. Management believes that the stock should trade at a multiple of 23 today, which indicates that investors are getting a healthy dividend on the stock. Additionally, it sees dividend growth over the next five years giving the stock a fair value of $176 per share in 2029. This would amount to an average annual return of more than 25% over the next five years, based on the share price as of this writing.
Whether Brookfield can capitalize on the investment opportunity it seeks remains to be seen. Ackman seems to believe that there is a lot of growth ahead for the company, and it could produce the returns management is predicting.
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Adam Levy has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Brookfield, Brookfield Corporation, Chipotle Mexican Grill, and Nike. The Motley Fool recommends the following options: short December 2024 $54 puts on Chipotle Mexican Grill. The Motley Fool has a disclosure policy.
Billionaire Bill Ackman Just Poured $2.2 Billion Into These Two Amazing Shares was first published by The Motley Fool.
