Recently, it has come to light that Ackman spent $1.1bn on Netflix (NASDAQ: NFLX) shares after the stock’s post-earnings pullback in January. Ackman bought near the $390 mark, picking up 3.1m shares. Should I follow the hedge fund manager and buy Netflix stock myself? Let’s take a look.

Should I follow Bill Ackman into Netflix stock?

After Netflix’s recent share fall, I’m certainly tempted to start a position here.

For starters, the valuation doesn’t look that high. For 2023 (the next financial year), Wall Street analysts expect Netflix to generate earnings per share of $14.20. That means the forward-looking price-to-earnings (P/E) ratio is around 28 at the moment. I wouldn’t say that’s a bargain, but I don’t think it looks excessive, given the company’s growth rate. It’s worth noting that Bill Ackman said after his purchase that he saw a “compelling risk/reward” at current prices.

Secondly, I think the company is likely to keep generating solid growth in the years ahead. For 2022 and 2023, analysts expect the group to generate revenue growth of about 12% per year. “We’re optimistic about our long-term growth prospects as streaming supplants linear entertainment around the world,” said management in the recent Q4 results.

Finally, it’s worth noting that Netflix CEO Reed Hastings spent around $20m on stock himself in late January. This is encouraging as it suggests that the insider is confident about the future and that he expects the share price to rebound.

Overall, I can see appeal in Netflix stock at current levels. 

A better way to play the streaming boom?

However, I think there could be a better way to play the streaming boom and that’s by investing in Alphabet (NASDAQ: GOOG), which owns YouTube.

Right now, YouTube revenues are growing faster than Netflix revenues. In Q4 of 2021, for example, YouTube revenues rose by 25% while Netflix revenues rose by 16%. And YouTube revenues are now bigger than Netflix revenues. For Q4, YouTube revenues amounted to $8.6bn while Netflix revenues amounted to $7.7bn.

Meanwhile, YouTube has to spend a lot less money to get hold of content. That’s because YouTubers make it all themselves. This is a fantastic business model, to my mind, as YouTube doesn’t need to spend billions creating content. In recent years, Netflix’s costs have ballooned.

Additionally, Alphabet has a lower valuation than Netflix. At present, Alphabet shares trade on a forward-looking P/E ratio of 24 times using 2022 forecast earnings and 21 times using 2023 forecast earnings. These are attractive valuations, to my mind.

Of course, there’s no guarantee that Alphabet shares will outperform Netflix shares in the years ahead. It’s worth pointing out that both companies face their own unique set of risks. For example, Netflix is facing intense competition from the likes of Amazon Prime and Disney. Meanwhile, Alphabet could attract attention from regulators in the years ahead due to its dominance. 

All things considered, however, if I was looking for exposure to the streaming space today, I’d pick Alphabet over Netflix.

The post Bill Ackman just spent $1.1bn on Netflix stock. Should I buy the shares too? appeared first on The Twelfth Magpie.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Edward Sheldon owns Alphabet (C shares) and Amazon. The Motley Fool UK has recommended Alphabet (A shares) and Amazon. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Despite not being exposed to the tech titans, his investment vehicle — Pershing Square Holdings — has outperformed the S&P 500 over the last five years. And when you consider the US index has more than doubled itself over this time, I think this makes Ackman worth listening to. 

Thinking like Bill Ackman

As a value investor, Ackman looks for stocks he believes are being unfairly rated by the market. This isn’t to say he automatically buys anything with a cheap-looking price tag. He actually makes a point of only investing in companies with sound balance sheets and strong brands in sectors with significant barriers to entry.

The drawback of adopting this approach is that it takes time for value plays to work out (if they work out at all!). This can test even the most patient of investors. It’s hard to stay committed to a stock when others are making great money in glitzy tech shares or promising penny stocks. 

Not that this bothers Ackman. As he said: “Investing is a business where you can look very silly for a long period of time before you are proven right.” In other words, he’s more than happy to play the contrarian. 

I believe there are at least a couple of stocks in the FTSE 100 that matches this mentality.

2 UK stocks Ackman might like

1) Tesco (LSE: TSCO) is a stock Ackman actually once contemplated buying. It’s not hard to see why. A great brand is just one of the FTSE 100 member’s attractions. And right now, the UK supermarket giant also looks good value at 13 times forecast earnings.

The shares have been stuck in the 200-250p range for a couple of years. However, I reckon Tesco’s share price will rise again as additional costs relating to Covid-19 aren’t repeated and profits rise accordingly. Yes, the supermarket sector remains a highly competitive space. The growth of German discounters, for example, shows no sign of slowing. However, if any company can beat back rivals, it’s one with a huge market share.

In the meantime, Tesco yields 4.1%, according to analyst projections. I’d have no problem buying the stock for my ISA today.

2) Whitbread (LSE: WTB) is another FTSE 100 stock I think Ackman might like. He does, after all, hold a considerable position in Hilton within the Pershing Square portfolio.

Whitbread has an excellent brand in Premier Inn. It also has a commanding market share of the budget hotel sector in the UK. Having taken advantage of the weakness of opportunities over the pandemic, it now stands to fully benefit from a rebound in travel and tourism in the UK. On top of this, the firm is continuing to expand in Germany. This should give it more geographical spread, earnings-wise.

Quite when we see a full recovery in the Whitbread share price is open to debate. Variants of Covid-19 could still impact the hospitality sector for some time to come, which comes back to the point of being patient. 

The post I’d listen to billionaire Bill Ackman and buy these FTSE 100 shares for my ISA appeared first on The Twelfth Magpie.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has recommended Tesco. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

But with his closed-ended fund’s London-listed shares now trading at a 15% discount to their net asset value (NAV) is now the time to buy into Ackman’s well-earned reputation on the cheap?

Well, it remains to be seen whether this steep discount can be closed in the coming quarters. Ackman initiated the London listing for the £3.6bn fund with the explicit purpose of closing the valuation gap by increasing index fund holdings due to its automatic inclusion in the FTSE 250. As the fund was only listed in May, and joined the FTSE 250 in June, only time will tell whether this discount can be narrowed and today’s valuation prove a true bargain pickup.

But, there is no doubting that UK investors will now find it easier to piggyback on the future returns of a very successful investor with a long history of market-beating returns. However, they do need to remember well the fact that historic out-performance does not indicate a likelihood of future out-performance.   

An added wrinkle to consider is that of the 10 long positions and one short position the fund publicly disclosed holding as of June are all North America-listed companies and so may be a bit risky for British investors. Furthermore, Ackman is famous for making highly concentrated bets. As of the end of Q1, a little more than 70% of the portfolio was tied up in just three companies: Burger King parent Restaurant Brands International; fast casual restaurant Chipotle; and snack food producer Mondelez. This means investors should expect wild swings in performance and share price due to little diversification.

A safer option?

Another famous American hedge fund manager who has tapped British investors for long-term capital is Dan Loeb of Third Point. His London-listed, closed-ended fund, Third Point Offshore Investors (LSE: TPOG), invests its capital in the Third Point master fund and also trades at around a 15% discount to its NAV. Like Ackman’s fund, this discount is down to a variety of factors such as illiquidity of shares, the relatively high management fees charged, and investors pricing in the potential for poor performance.

As the current discount is relatively in line with historic levels, I reckon the fund probably isn’t a screaming bargain. However, for investors looking for exposure to a more diversified hedge fund, Third Point could fit the bill with the top three positions as of Q1 representing just under 40% of the portfolio. The fund is also more international in nature with large stakes in Italian bank UniCredit SpA, German utility E.On and Swiss multinational Nestlé as of the end of June.

The post Is Bill Ackman’s newly FTSE 250-listed fund a bargain basement buy? appeared first on The Twelfth Magpie.

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