Pershing Square Portfolio Update Presentation: Nike, S&P Global & More

Bill Ackman's activist firm Pershing Square recently made a presentation to investors about the current state of their portfolio and how they're re-tooling the organization after a few years of poor performance.  In 2017, Pershing was down 4%.

The presentation provides brief updates on all their holdings, including their new Nike (NKE) stake.


Pershing Square on New Nike Stake (NKE)

They bought Nike because it's "a high quality business that should compound long-term earnings at a high rate due to strong revenue growth and margin expansion."

They see it as an iconic brand with a dominant market position.  The company has assets via patents, a huge marketing budget, brand loyalty, manufacturing skill, and leverage with suppliers and customers.

Pershing thinks the company can continue to grow revenue in the high single digits.  They note positive secular trends of health/wellness and emerging market growth as key contributors, as well as pricing power.

The firm sees Nike expanding margins via new manufacturing processes and growth in distribution channels with "more favorable economics."


Ackman Bought & Sold S&P Global (SPGI)

The presentation also reveals that Pershing Square was buying shares of S&P Global (SPGI) during 2017 but sold the stake because they couldn't build a full position size as markets rose.

Their thesis was that "S&P is an annuity-like business with pricing power, strong secular growth and a margin opportunity."  It's a credit ratings and financial data services firm with the former comprising 55% of EBIT and the latter 45%.


Lastly, Pershing Square also bought an undisclosed position but sold that as well.  It's interesting that they aren't revealing the name.  Does this mean perhaps they might want to revisit it if the share price hits a level they're comfortable with? Who knows.

The presentation also includes updates on their stakes in: ADP, Chipotle, Howard Hughes, Mondelez,  Restaurant Brands, Fannie Mae/Freddie Mac, Platform Specialty Products, and their short of Herbalife (HLF).

Embedded below is Pershing Square's portfolio update presentation:



For more from this fund you can also read Pershing Square's Q3 letter.

Pershing Square Q3 Letter: Restructures Herbalife Short

Bill Ackman is out with Pershing Square's third quarter letter to investors.  Pershing Square returned -3.7% net in the third quarter and was down 4.2% for the year at that time.

Pershing has restructured its short position in Herbalife (HLF).  Rather than shorting common stock, they've covered that and are now short via put options.

Ackman is also quite bullish on Mondelez (MDLZ): "We believe MDLZ is currently substantially undervalued given its high business quality, long-term secular growth potential - especially in emerging markets - and substantial opportunity to improve profit margins.  Today, Mondelez trades at 17 times our estimate for 2018 earnings per share, a discount to the S&P 500 market multiple, for a business whose attributes are substantially better than the average company in the S&P 500."

The letter also provides updates on their holdings: Restaurant Brands (QSR), ADP (ADP), Howard Hughes (HHC), Chipotle (CMG), Fannie Mae / Freddie Mac, Platform Specialty Products (PAH).

Embedded below is Pershing Square's Q3 letter:



For more recent hedge fund commentary, we've also posted up Third Point's Q3 letter as well as Greenlight Capital's Q3 letter.

Pershing Square Q2 Letter: Sold Undisclosed Hilton Stake

Bill Ackman's Pershing Square has put out its mid-year report which includes commentary on their investments.  They also disclose that they previously owned a stake in Hilton (HLT) but recently sold it after the spin-offs took place.

In the letter, they also write about their latest investment, Automatic Data Processing (ADP):

"ADP is a classic Pershing Square investment. It is a simple, predictable, free-cash-flow generative business that has under performed its potential. As a conservatively financed, capital-light business with long-term customer relationships in a sector with substantial positive growth, we believe it has modest downside. If it is able to achieve its potential, we believe it offers substantial upside. We acquired ADP for the funds along with a co-investment vehicle (PSVI) which we recently raised to increase our ownership of the company.  We believe that ADP is one of the highest quality businesses we have owned, and one which offers an enormous opportunity for operational improvement.

They also provide an update on their stake in Chipotle (CMG), noting that the company has battled another setback with a norovirus incident in Virginia.  That said, Pershing feels that the company is still on the right track.  They write,

"We made our investment in Chipotle anticipating that the sales recovery would be neither smooth nor predictable,but with a belief that the key drivers of Chipotle’s powerful economic moat and long-term success would remain intact. With the steps that the company has taken to improve its business, we continue to believe there is an enormous long-term growth opportunity for Chipotle given: (1) the significant potential to drive sales per restaurant higher through mobile and digital ordering, menu innovation, catering, and improved operations, (2) the opportunity to expand its vastly under penetrated restaurant base in the U.S., and (3) the considerable potential to build the brand internationally."

Their letter also touches on Mondelez (MDLZ), Howard Hughes (HHC), Air Products (APD), Restaurant Brands (QSR), Platform Specialty Products (PAH), Nomad Foods (NOMD), and Fannie Mae/Freddie Mac, as well its short position: Herbalife (HLF).


Embedded below is Pershing Square's Q2 letter:



You can download a .pdf copy here.

Pershing Square's Q1 Letter

Bill Ackman is out with Pershing Square's first quarter 2017 letter.  Pershing returned -2.6% net in the first quarter of the year.

We've already highlighted how Ackman pitched Howard Hughes at the recent Sohn conference. 

His Q1 letter provides updates on other stocks such as Mondelez (MDLZ), Air Products (APD), Restaurant Brands (QSR), Chipotle (CMG), Fannie Mae/Freddie Mac, as well as Platform Specialty Products (PAH), Nomad Foods (NOMD), and their short of Herbalife (HLF).



Embedded below is Pershing Square's Q1 letter:



You can download a .pdf copy here.

What We're Reading ~ 2/16/17

Ed Thorp's new book: A Man for All Markets [Ed Thorp]

Seth Klarman weighs in on Trump [NYTimes]

Homeownership rate in 2016 was lowest in 50 years [Corelogic]

US household debts climbed in 2016 by most in a decade [WSJ]

Income share for the bottom 50% of Americans is collapsing [Marketwatch]

On the downfall of Toshiba, a nuclear industry titan [FT]

This free range short seller is making his comeback [Bloomberg]

Does Chipotle's valuation offer a margin of safety? [Rational Walk]

A whirlwind tour through trends in China [Andreessen Horowitz]

Beware Sears's zombie apocalypse [Bloomberg]

Inside Sears' death spiral [Business Insider]

Jeff Bezos wants Amazon to be the next HBO, Showtime [NYPost]

Tim Cook says augmented reality is a big idea like the smartphone [The Verge]

Bill Gates 2017 annual letter [GatesNotes]

What We're Reading ~ 2/8/17

Misbehaving: The Making of Behavioral Economics [Richard Thaler]

Honored to be listed in 2016's most influential finance Twitter accounts [Sentieo]

Shameless plug: if you don't already, follow @marketfolly on Twitter

Mitigating short exposure: learning from others' mistakes [CFA Institute]

Interview with Ed Thorp, the man who beat the casinos & markets [FT]

Stop chasing the wrong kind of growth [Harvard Business Review]

On analyst ratings and the institutional imperative [Base Hit Investing]

Old Mutual boss on how to run an active fund patiently [Daily Mail]

FIZZ: The secret history of the LaCroix fad [Bon Appetit]

How streaming is changing music consumption [HeavyBlogisHeavy]

Cannabalization, intense competition both roadblocks for Chipotle [Peridot]

The individual investors' performance incentive system [Rational Walk]

A look at NAFTA and American manufacturing [Vox]

Fidelity's bond king banks on Trump reflation trade [Bloomberg]

Facebook is trying everything to re-enter China and it's not working [WSJ]

BlackRock's robot stock-pickers post record losses [Bloomberg]

Pershing Square Exercises Chipotle Options

Bill Ackman's activist firm Pershing Square Capital Management filed an amended 13D with the SEC regarding their position in Chipotle (CMG).  Per the filing, Pershing's ownership stake remains unchanged at 9.9% of the company.

However, the filing notes that they exercised forward purchase contracts on CMG on October 20th.  Total trade amount was just over $947 million and yielded them over 2.32 million shares of Chipotle common stock.

Chipotle just reported earnings yesterday and the stock is trading down 8% today.

You can view other recent Pershing Square portfolio activity here.

Per Google Finance, Chipotle "operates Chipotle Mexican Grill restaurants. The Company's Chipotle Mexican Grill restaurants serve a menu of burritos, tacos, burrito bowls (a burrito without the tortilla) and salads. The Company operates approximately 1,970 Chipotle restaurants throughout the United States, over 10 in Canada, seven in England, four in France and one in Germany. The Company's restaurants include over 10 ShopHouse Southeast Asian Kitchen restaurants, serving Asian-inspired cuisine. The Company owned and operated approximately three Pizzeria Locale restaurants, a fast casual pizza concept, resulting in a totaling of approximately 2,010 restaurants. The Company sells gift cards which do not have an expiration date."

What We're Reading ~ 10/20/16

The dying business of picking stocks [WSJ]

Marks, Grantham, Arnott, Gundlach reveal their biggest hits and mistakes [WSJ] 

John Maynard Keynes: courage is the key to investing [WSJ]

Joel Greenblatt's investing secrets revealed [Barrons]

What does Nevada's $35 billion fund manager do all day? Nothing [WSJ]

What I learnt on the sell side [What I Learnt on Wall St]

What's something you strongly believe in that's likely wrong [Collaborative Fund]

How to stay patient for longer [Clear Eyes Investing]

Chipotle (CMG): is the brand intact? [Rational Walk]

A quick look at Liberty Ventures (LVNTA) [Peters Macgregor]

A piece on Atlassian (TEAM) [Fast Company] 

27 charts that will change how you think about the American economy [Vox]

The Jeff Bezos regret minimization framework [A Wealth of Common Sense]

Preparing for the future of artificial intelligence [The White House]

An integrated perspective on the future of mobility [McKinsey]

The best performing CEOs in the world [Harvard Business Review]

Liquid assets: how the business of bottled water went mad [The Guardian]

Sam Zell sees limited investment opportunities in the future [NREI]

Deutsche Bank: a Greek tragedy at a German institution? [Aswath Damodaran]

Imagining a cashless world [New Yorker]

Pershing Square Builds Chipotle Stake

Bill Ackman's activist firm Pershing Square has filed a 13D with the SEC regarding Chipotle (CMG).  They've disclosed a new position in the company and now own 9.9% of CMG with over 2.88 million shares.

We've highlighted recently how Ackman has been selling various stakes and raising cash and now we know where some of that cash was allocated to.

Chipotle has slowly been trying to recover from a series of food poisonings that severely affected the company's results.  As shares have fallen, some value investors have started to poke around and Ackman has joined the cause as an activist voice.  The 13D notes he'll meet with management.

To build the stake, Pershing bought and sold various options and you can view the full list of transactions here.

While some people have given Ackman grief for the saga with Valeant Pharmaceuticals (VRX), the quick service restaurant space is something he absolutely has experience with.  It will be interesting to see how he tries to help them recover from their troubles given he feels the company has an excellent brand.

Per Google Finance, Chipotle is "together with its subsidiaries operates Chipotle Mexican Grill restaurants. The Company's Chipotle Mexican Grill restaurants serve a menu of burritos, tacos, burrito bowls (a burrito without the tortilla) and salads. The Company operates approximately 1,970 Chipotle restaurants throughout the United States, over 10 in Canada, seven in England, four in France and one in Germany. The Company's restaurants include over 10 ShopHouse Southeast Asian Kitchen restaurants, serving Asian-inspired cuisine. The Company owned and operated approximately three Pizzeria Locale restaurants, a fast casual pizza concept, resulting in a totaling of approximately 2,010 restaurants. The Company sells gift cards which do not have an expiration date.."

What We're Reading ~ 1/13/16

George Soros: it's the 2008 crisis all over again [CNBC]

Rare interview with Michael Burry (of The Big Short fame) [NYMag]

Daniel Kahneman on intuition and loss aversion [Farnam Street]

Barron's top 10 stock picks for 2016 [Barrons]

The 2016 Crossing Wall St buy list [Crossing Wall Street]

On Amazon's entrance into India [Fortune]

Amazon and world domination [Value Venture]

A painful year for contrarian trades [A Wealth of Common Sense]

The difference between patience and stubbornness [Fool]

In Silicon Valley now, it's almost always winner takes all [New Yorker]

Baidu's Li says investors don't get China's coming internet boom [Bloomberg]

The digital future of consumer-packaged goods companies [McKinsey]

50 unfortunate truths about investing [Morgan Housel]

Cordcutting: myth or reality? [Value Seeker]

How FICO became outdated [PYMNTS]

Meet the 'new' lower margin, lower quality Chipotle [HVST]

Current case for Liberty Global (LBTYA/K) [Jnvestor]

Nearly 95% of young renters want to buy, but many say they can't afford it [WSJ]

What We're Reading ~ Analytical Links 2/4/15

Dead companies walking: How a hedge fund manager finds opportunity [Scott Fearon]

Seth Klarman on what he's learned from Warren Buffett [FT]

On mindfulness, meditation and investing [Abnormal Returns]

The future of iron ore [Joe Magyer]

FCC Chairman: this is how we will ensure net neutrality [Wired]

Monetary policy: the great illusion [CapX]

Inside the studio where ESPN is betting billions on the future of sports [The Verge]

On Disney's Bob Iger and Apple's Steve Jobs [Fortune]

Here's why Netflix stock is so volatile [MicroFundy]

How Berkshire can survive beyond Warren Buffett [Stanford]

Study says 'boring' stocks generate better returns [Marketwatch]

On Keynes the stock market investor [SSRN]

Chipotle: the definitive oral history [Bloomberg]

The Chipotle effect: why America is obsessed with fast casual [Washington Post]

Inside RadioShack's slow motion collapse [Bloomberg]

Google is developing its own Uber competitor [Bloomberg]

On declining lethality [NYTimes]

Greenlight Capital's Q1 Letter: Sees Tech Bubble Forming

David Einhorn's hedge fund firm Greenlight Capital is out with is first quarter letter.  In it, they talk about how a potential bubble in tech is forming.  As such, they've shorted a basket of momentum names in small size in order to manage risk.

Other main takeaways from the letter include various new longs for Greenlight: Resona Holdings (Japan: 8308), SunEdison (SUNE), Altice (Netherlands:ATC), and Conn's (CONN).  The last long might be a surprise to some, as many hedge funds have been short the retailer that also deals in subprime lending. 

Greenlight also covered many unsuccessful shorts, including Chipotle (CMG), Fortescue Metals, Loblaw Companies, and Michael Kors (KORS).

At the end of Q1, their largest long positions were Alpha Bank, Apple, gold, Marvell Technology, Micron, and Oil States International.

Embedded below is Greenlight Capital's Q1 letter:




You can view other recent portfolio activity from Greenlight here.

Greenlight Capital's Q4 Letter: New Positions in Micron, BP, & Anadarko Petroleum

David Einhorn's hedge fund Greenlight Capital returned 19.1% net in 2013.  Greenlight's fourth quarter letter to investors unveils their thesis on new positions in Micron Technology (MU), BP (BP), and Anadarko Petroleum (APC).

Greenlight likes Micron because the industry has started to act a bit more rationally and MU will buyback shares instead of building new factories.

Their BP stake is a play on increasingly shareholder friendly capital allocation policies as well and they think the company is worth $70 per share (it trades around $49 now).  

Additionally, their letter talks about some positions they've closed recently like Airbus Group (formerly EADS), and ThyssenKrupp.

At the end of 2013, Greenlight's largest positions in alphabetical order were: Apple (AAPL), General Motors (GM), Marvell Technology (MRVL), Micron (MU), and Vodafone (VOD).

Thanks to ValueWalk who posted up Greenlight's Q4 letter and you can view it below:




For more on Einhorn, we just yesterday revealed some more of Greenlight's recent portfolio activity.

And for more year-end hedge fund letters, head to Third Point's Q4 letter here.

What We're Reading ~ Analytical Links 6/5/13

The new R&D: Repurchases and dividends [Reformed Broker]

A macro update [Micro Fundy]

The long case on Altisource Portfolio Solutions (ASPS) [Seeking Alpha]

A look at Charter Communications (CHTR) [Brooklyn Investor]

Jeff Gundlach: short Chipotle and avoid everything Apple [Covestor]

Beware the hidden costs in tech [Barrons]

A bastardization of the process [Research Puzzle]

Buffett's Berkshire buys small Virginia newspaper [CNBC]

Harvard's Kaplan says to succeed know what you want [Bloomberg]

Mavericks lecture: Liberty Media's (LMCA) John Malone [Youtube]

The power of habit investments [Zen Habits]

Ben Graham's "foolproof method of systematic investment" [Greenbackd]

It's time for objectors of Bank of America's MBS deal to make their case [Reuters]

Prince Alwaleed and the curious case of Kingdom Holding Stock [Forbes]

An 18-minute plan for managing your day [Harvard Business Review]

On money and happiness [Harvard Gazette]

Jeff Gundlach's Sohn Conference Presentation: Short French Bonds, Short Chipotle, Long Gold

We're posting up notes from the Ira Sohn Conference 2013 in New York.  Next up is a summary of the presentation from Jeffrey Gundlach of DoubleLine.  He talked a lot about quantitative easing and various other topics.


Gundlach's Talk on Quantitative Easing

He thinks quantitative easing will stay for a long while for many months if not years into the future.  It's a way to keep interest expense low and can also generate lower insurance premiums so he would avoid insurance companies.

Just because rates are low now doesn't mean they have to rise quickly.  Timing is everything in investing.  The Fed mentions the downside of QE just "so they can say they talked about it."  He said this isn't the beginning of a new bull market.  If you want to play QE via stocks, do it in Japan.

Gundlach said that Cyprus' taking deposits worries him as a precedent has been set so he said to avoid sticking money in the bank.  If you want to play QE in Europe, just short French bonds. 

He points to Treasuries not being a crowded trade.  Asking the audience to raise their hands if they own them, very few hands were raised.  He says QE is a put on Treasuries. 

Gundlach's picks:  Short Chipotle (CMG) ~ "gourmet burrito" is an oxymoron, short French bonds, gold.  Avoid bank deposits.

For more on this manager, we've also highlighted some of Gundlach's previous thoughts on holding cash here.


Check out the rest of the hedge fund presentations from the event: notes from Ira Sohn Conference 2013.

David Einhorn's Presentation on General Motors, Cigna, Chipotle & GMCR: Value Investing Congress

Continuing coverage, we're posting up notes from the Value Investing Congress.  Below are notes and the presentation of David Einhorn of Greenlight Capital.  His talk was entitled 'Kicking the Tires' where he covered a range of topics, but mainly pitched General Motors (GM) and Cigna (CI) as longs and Chipotle (CMG) as a short.

"Do your homework and kick the tires." It's not the answers that make you good in this business, it's the questions you ask. Talked about how Green Mountain Coffee Roasters (GMCR) was down 6% as he spoke during his presentation last year, but the point is it dropped right away, before people listened to the slides.  So he says you must do your own work.

Einhorn also mentions Herbalife (HLF), talks about him asking questions on the conference call. Because he said people were worried about the quarter.  Says he was quite surprised by the reaction.  Caris actually downgraded the stock based on the probability he was short. 

He mocks investors for not doing the work, but just trying to blindly follow him.    DO YOUR OWN WORK!  This is something we try to emphasize on MarketFolly.  Tracking hedge funds is a great way to find ideas, but only use it as a starting point.  Due diligence is key.


Einhorn's 4 Ideas This Year

1.  Long General Motors (GM): Remains an "ugly duckling" due to long investor memories, government ownership overhang and weak Europe division.

Bull case: Fixed cost structure improved. Pension risks overblown, unfunded liability may have narrowed by several billion, rising interest rates would help, too.  No required pension contributions until at least 2019.  Balance sheet cleaned up, brand quality improving across the board, improving pricing. $23.09, $42B, cash is 3/4 of the market cap.  $70B in tax shields; no taxes in US for a decade. EV is actually only $6B when you take these things out. $6.6B in EBIT this year, P/E depressed due to cash hoard earning nothing.  Consensus is too low, SAAR may be higher than street.

GM is #1 in China and growing faster than industry.  Europe is a problem and should restructure to at least break even by 2015. Government stake is an opportunity, not an overhang. US demand is 16M units:  Scrap is 13.2M units/year in a normal year. Ave age is now 11 years, up from 9 a decade ago.  5.5% scrap rate implies 19 year average life. Population growth alone is 2M units of annual demand. Recessions cause less vehicles per driver, but it rebounds as economy does.  This is 500k units/year. His SAAR is 16M units, not peak, but midcycle. Implies 315k incremental units for GM, $1.00 per share eps. 60% of units new in 2013/14 vs. 23% in the last 2 years. 2013 Cadillac ATS- "Esquire Car of the Year"

Does not believe European losses will persist indefinitely. $42B market cap, $32B cash, and $6B revolver.  So $38B total liquidity.  What should it do with its cash?  Government has 50M shares.  Repurchase of these is accretive, even at $30 per share, costs $15B.  $53 is break-even, so no sale will occur before election.  If Obama is re-elected, he may be willing to sell at a loss. Otherwise, they could still do a large open market buyback instead. 2014 "taxed" earnings could be $6 in 2014, $8 cash earnings.  This is midcycle, not peak result, so deserves a better multiple.


2.  Long Cigna (CI):  Lots of work. Have to understand HMOs, then Obamacare, then how it influences CI.  Then you have to understand their non-HMO businesses. Investors don't like HMOs now.  Earnings are hard to predict from Q to Q.  Obamacare scares investors.

Scary things: Humana (HUM), Wellpoint (WLP), Healthnet (HNET) all missed this year.  Obamacare: capped profits, risk of financial penalties 

Bull case: Secular growth, high barriers to entry, big players have scale already.  Still, ROE has been strong over time. CI is the best performer in the group.

Things that won't affect HMOs: Greek debt, Europe, China slowing, etc. They reprice annually so they always make money.  Obamacare is just "a homework problem" that can be analyzed. Also has Group Disability/Life and International business. 82% is non-risk bearing ASO business.  PBM is a potential high multiple sale GDL segment is consistent source of earnings despite weak employment trends. International is for multinational corporations' employees living overseas.

Trades at 7.7x 2013E, at a discount to sector which is cheap already.  You can see further comments from Einhorn on Cigna in Greenlight's Q2 letter.


3.  Short Chipotle (CMG):  Trades at 35x, nosebleed valuation. Average sector multiple is 22x. Compares to PF Chang, Boston Market.

Restaurant business:  low barriers to entry, Obamacare brings additional costs since they don't currently provide health care for employees, summer drought affects costs in coming periods.

The biggest near-term challenge: A resurgent Taco Bell (part of Yum Brands ~ YUM).  Most analysts think Taco Bell is low-end quick service restaurant, and CMG competes with higher end Panera.

He did a survey of CMG customers, and they actually visit Taco Bell almost as much.  Taco Bell SSS up 12% last year, while CMG missed. Taco Bell has more locations and cheaper menus. Taco Bell has decided to compete directly with CMG with their "Cantina Bell" menu which is almost exactly the same, but with 35% lower prices. 2/3 of CMG customers that tried Cantina Bell thought it was good; almost 1/2 liked it as much or more. Makes sense, Taco Bell has more money, locations, and can just add the Cantina Bell menu items to blunt CMG competition. Lots of insider selling as well.


4.  Short Green Mountain Coffee Roasters (GMCR):  He believes there is still accounting fraud. CEO said they had an investigation, but only took 23 days. Cites the SBUX "Verismo" system. Agreement for K-cups with SBUX is vague- how long?  CAPEX/sales is very high, 9-11-13% of sales, vs. industry average of 3.3% He also says a price war is coming, and GMCR generated no FCF during it's years as a monopolist.  Thinks the stock has further downside.  You can view Einhorn's presentation on GMCR from last year if you haven't seen it.


Question & Answer Session:

Does he like Yum Brands (YUM)?  Likes Taco Bell, but KFC in China may hurt too much. Not long.

Future price for CMG?  He says "we don't have to worry about that, we just think risk-reward favors the downside." GM, is government stake affecting sales?  He says they will sell sooner rather than later, and they are a passive role.  Chevy Volt obviously not going well and it's a tiny part of GM's business.

Anything on Moody's (MCO)?  Still thinks it’s a short, lawsuits are very persistent.

What about Apple (AAPL)?  His opinion unchanged

He's short steel, which he says is a hedge in a way, and lower steel prices are good for autos.

On Cigna (CI)?  "Less than 1% of the business is individuals"

Comments on St. Joe (JOE)?  Says they finally had a conference call, sales are zero, says you should listen to it.  Management, other than CFO, were too busy to take questions.


Embedded below is Einhorn's slideshow presentation from the Value Investing Congress: 

(.PDF coming soon)

Check out the rest of the hedge fund presentations from the Value Investing Congress.