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.

Rolls-Royce shares: unfairly valued?

It’s not hard to see the appeal. Rolls-Royce shares still languish far below where they were a few years ago. With Covid-19 infection rates falling in the UK and demand for international travel roaring back, I think there’s a lot to be optimistic about. Put simply, more planes in the sky mean greater demand for the company’s engines (and the need for those engines to be maintained) going forward.

Yesterday’s news that the Rolls would be looking to turn cash-flow positive in the second half of this year was also encouraging. That said, it’s clear a full business rebound is still some way off. As indicated yesterday, the slow recovery in travel means its target of £750m in cash flow might not be reached in 2022 as hoped. A lot can happen before then. This is where things get problematic.

Based on past performance, Rolls still qualifies as a high-beta stock. In other words, its share price is more sensitive to setbacks than the market as a whole. That’s concerning if I think a correction is imminent.

As an aside, ‘anchoring’ myself to historical prices that Rolls-Royce shares have hit should also be avoided. In reality, stocks don’t know how valuable they once, were or whether they’re regarded as ‘bargains’ or not. Shares also don’t care who owns them. 

Speaking of bargain hunting, I wonder if I might be able to make a better return from Pershing Square (LSE: PSH)?

Better buy?

I reckon this top-tier fund has stayed off many radars due to its manager — US billionaire Bill Ackman — not being particularly well known in the UK. Lacking exposure to tech stocks, PSH definitely doesn’t generate as many headlines as fellow FTSE 100 member Scottish Mortgage Investment Trust either.

Ackman is a value-focused investor and Pershing Square has just 10 ‘bargain’ holdings. Some names will probably ring a bell. Hilton and Chipotle, for example. Others like Lowe’s (the home improvement retailer) and Agilent Technologies (analytical instrument developer) may be less familiar. Universal Music Group will also enter the portfolio soon.

What I find really interesting about Pershing Square is that it trades on a big discount to its underlying holdings (net asset value). That’s despite PSH outperforming the S&P 500 index over the last five years — no mean feat considering the latter’s huge dependence on only a few tech titans. 

Then again, like Rolls-Royce shares, the portfolio has definitely benefited from the huge bounce seen in stocks as a whole over the last year or so. So, if I were to invest in PSN now, I’d still expect some volatility. I’d also need to be comfortable with Ackman’s occasional desire to short stocks (which hasn’t always paid off).

Risk vs reward

All things considered, I’d be more inclined to buy a stake in Pershing Square over Rolls-Royce shares today. I don’t expect an easy ride for either. Nevertheless, the former focuses on companies that offer Buffett-style ‘economic moats’, high returns on capital and robust balance sheets. This leads me to think PSH offers a better risk/reward trade-off compared to RR.

The post Are Rolls-Royce shares now a bargain? appeared first on The Twelfth Magpie.

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Paul Summers owns shares in Scottish Mortgage Investment Trust. The Motley Fool UK has no position in any of the shares mentioned. 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.

Managed by James Anderson since 2000, the company is heavily invested in the market’s top tech stocks, companies that Anderson believes will continue to dominate not just the online retail space, but the internet in general for many decades. 

The top three holdings of the trust, accounting for just over 25% of assets, are Amazon.com, Tencent Holdings and Alibaba. These companies have transformed the internet landscape over the past few decades, and their continued dominance of the space indicates that they are likely to continue to rule the web for many years to come. 

In fact, according to a recent interview in MoneyWeek, the team believes Amazon is not “anywhere close to the end of its period of increasing dominance” and that investors have barely begun to “grapple with” the “awesome” power of “Alibaba and Tencent.“

International exposure 

The great thing about Scottish Mortgage is that it allows the average investor to take part in these internet giants’ growth stories without having to take on the additional risks that come with investing overseas. Anderson and team take care of all the hard work for you, allowing you to sit back and relax. 

The FTSE 100 trust’s record of producing returns for investors is so impressive, I believe it’s one of the best investments around for your retirement portfolio. Over the past five years, the investment vehicle has returned 191%, smashing the FTSE 100 performance over the same period of 15%. 

Multi-decade record 

Another investment company I believe could make an excellent investment for your retirement portfolio is Pershing Square Holdings (LSE: PSH). 

This business has several fundamental differences from Scottish Mortage. For a start, rather than an investment trust, it’s an investment vehicle for the US activist investor Bill Ackman. 

A former star of the hedge fund industry, Ackman’s star began to fade in 2015 when his significant investment in pharmaceutical company Valeant went pear-shaped and ever since he has been trying to make a comeback. 

Unfortunately, last year Pershing’s net asset value lost 4% extending the declines reported over the past three years. However, despite these three years of terrible performance, since Pershing’s founding in January 2004, the firm has produced a compound annual return of 13.6%, more than double the FTSE 100’s yearly gain over the same period. 

Once again, I believe Pershing gives UK investors a great, low effort way to profit from international growth. The two top holdings of the investment firm are US businesses, Restaurant Brands International and Automatic Data Processing, Inc., both of which Ackman is working with to unlock value for investors. And as a bonus, the shares are currently trading at a discount of 23% to the reported net asset value of 1,135p.

The post Two FTSE 100 investment trusts that could help you retire early appeared first on The Twelfth Magpie.

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Rupert Hargreaves owns no share mentioned. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK owns shares of and has recommended 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.

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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