As billionaire investors go, I suspect Bill Ackman isn’t as widely known in the UK as Warren Buffett. I think this could be set to change as the years pass. This is assuming the hedge fund manager can keep doing as well as he has.
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.
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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.