Bill Ackman’s Pershing Square is promoted to the FTSE 100. Should I buy?

G A Chester weighs up Bill Ackman’s Pershing Square Holdings, a FTSE 100 new entrant, trading at a substantial discount to its net asset value.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Pershing Square Holdings (LSE: PSH), run by billionaire hedge fund manager Bill Ackman, has been promoted to the FTSE 100. It will take its place among the UK’s blue-chip elite on 21 December.

Despite outperforming the market by a wide margin over the last couple of years, PSH continues to trade at a substantial discount to its net asset value (NAV). This suggests it could offer a wide margin of safety and significant upside potential. But should I buy?

Pershing Square deal

Let me start by nailing down some numbers. PSH’s NAV per share at the end of last year was 2,035p. It’s increased 61% to 3,268p as of 30 November. Meanwhile, the share price has gone from 1,454p to a current 2,485p — a rise of 71%.

As such, the discount of the shares to NAV (24%) has narrowed somewhat since the start of the year (29%). Nevertheless, if you’re buying the stock today, you’re paying just 76p for every £1 of PSH’s assets. On the face of it, this is a terrific deal. Particularly as the company has delivered a storming performance in a year of extraordinary turmoil.

Attractive qualities

Listed in London in 2017, Pershing Square invests principally in publicly traded US-domiciled companies. Ackman looks to take a significant minority interest in a relatively small number of “superb businesses” when they’re trading at a discount to their “intrinsic value.” And he aims to be “an influential and supportive owner.”

Ackman’s business-focused philosophy and concentrated portfolio chime with other investors I admire, like Warren Buffett, Terry Smith and Nick Train. On this basis, I think Pershing has inherently attractive qualities.

As last reported, it owns stakes in 10 companies, including Starbucks, Burger King-owner Restaurant Brands, hospitality group Hilton, and key players in the US mortgage market, Fannie Mae and Freddie Mac.

At this point you may be thinking: Hang on Henry, if PSH owns stocks like these, how on earth has it managed to produce such impressive returns? This is where things get a bit Twilight Zone-ish.

Pershing Square, but part Bermuda Triangle

Ackman does some weird stuff most private investors don’t get involved in. He’s a hedge fund manager, after all!

As my Motley Fool colleague Edward Sheldon explained in a recent article, Ackman turned $17m into $2.6bn from a bet against corporate debt earlier this year, just as the pandemic was unfolding. He then ploughed the proceeds into stocks, just as they began their big, post-crash rebound.

Ackman’s wizardry can produce some outsized returns, almost from nowhere. But assets can also disappear when his bets go wrong. He had a run of losses a few years ago from some bad calls, including a massive short position against nutritional supplements seller Herbalife.

Should I buy Pershing Square shares?

I like Ackman’s core philosophy of investing in superb businesses when they’re trading at a discount to their intrinsic value. And Pershing Square offers UK investors a one-stop shop to buy into a small, actively-managed portfolio of such businesses listed in the US.

But you also have to be aware that Ackman will make some big, idiosyncratic and often contrarian bets. I don’t see anything wrong with this per se. Not if you’re looking for a higher risk-higher reward investment. PSH certainly looks very buyable to me right now at its 24% discount to NAV.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

G A Chester has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Starbucks and recommends the following options: short January 2021 $100 calls on Starbucks and short January 2021 $100 calls on Starbucks. 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.

More on Investing Articles

Investing Articles

Should I sell my FTSE All-Share index fund and buy a S&P 500 tracker instead?

Harvey Jones is wondering whether now is a good time to invest more money in the S&P 500, after a…

Read more »

Investing Articles

Should I buy dirt-cheap BT shares after the recent pullback?

BT shares were on the up but now they're sliding again after the board trimmed full-year guidance. Now Harvey Jones…

Read more »

Investing Articles

Up 28%, can the easyJet share price keep rising?

The easyJet share price has gained altitude over one year but plunged over five. Is now an attractive time for…

Read more »

British Isles on nautical map
Investing Articles

Should I buy more BAE Systems shares at 1,350p?

BAE Systems shares have had a fantastic run since early 2022, yet still don't appear overvalued. Is it now time…

Read more »

Young woman working at modern office. Technical price graph and indicator, red and green candlestick chart and stock trading computer screen background.
Investing Articles

7% yield and a cheap valuation! Is this one of the best shares to buy this month?

Christopher Ruane has been looking for cheap shares to buy. This one has a 7% dividend yield, so is it…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

Should I buy National Grid shares for the big dividend before it’s too late?

This year's price weakness has left National Grid shares on what looks like a tempting valuation. I hope it doesn't…

Read more »

Investing Articles

There are now 5,000 ISA millionaires! See the surprising UK dividend shares they’re buying

The number of ISA millionaires is growing all the time and guess what? They're really into blue-chip dividend shares listed…

Read more »

Blue NIO sports car in Oslo showroom
Investing Articles

Down 38% in weeks! Time to snap up NIO stock?

NIO stock's more than doubled in value over the past five years but has been on a wild ride lately.…

Read more »