Billionaire Bill Ackman has 37% of his FTSE 100-listed fund in these 2 superb stocks

Pershing Square shares are up 196% in five years. Ben McPoland looks at two top holdings that have been powering this FTSE 100 fund higher.

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Billionaire investor William ‘Bill’ Ackman manages the hedge fund Pershing Square Capital Management. Though based in New York, this fund is accessible to UK investors via Pershing Square Holdings (LSE: PSH), which is an investment trust in the FTSE 100.

Incredibly, Ackman has more than doubled the total return of the S&P 500 over the last five years. And the Pershing Square share price has rocketed almost 200% during this time.

This makes it the best-performing Footsie stock of the last half decade (just ahead of Ashtead and Frasers).

Should you invest £1,000 in Pershing Square right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Pershing Square made the list?

See the 6 stocks

Created with Highcharts 11.4.3Pershing Square PriceZoom1M3M6MYTD1Y5Y10YALL11 Apr 201911 Apr 2024Zoom ▾Jul '19Jan '20Jul '20Jan '21Jul '21Jan '22Jul '22Jan '23Jul '23Jan '242020202020212021202220222023202320242024www.fool.co.uk

Many hedge fund managers run incredibly concentrated portfolios and Ackman is no different. As of December, he had 37% of his $10bn+ portfolio split between just two companies.

These were Alphabet (NASDAQ: GOOG)(NASDAQ:GOOGL), accounting for nearly 19% of his invested assets, and Chipotle Mexican Grill (NYSE: CMG), which made up just over 18%.

Here’s why Ackman owns this excellent pair of stocks.

Alphabet

Alphabet owns Google, which has a monopolistic 91% share of global internet search. It’s also the parent of YouTube, Google Cloud, and self-driving firm Waymo.

Last year, the tech behemoth made $73.8bn in net profit from $307bn in revenue. This makes it one of the most profitable businesses the world has ever seen.

Created with Highcharts 11.4.3Alphabet PriceZoom1M3M6MYTD1Y5Y10YALL11 Apr 201911 Apr 2024Zoom ▾Jul '19Jan '20Jul '20Jan '21Jul '21Jan '22Jul '22Jan '23Jul '23Jan '242020202020212021202220222023202320242024www.fool.co.uk

However, that didn’t stop investors from dumping the stock early last year over fears that Google’s search dominance was under threat from ChatGPT and generative artificial intelligence (AI).

Ackman didn’t agree and started scooping up shares. That move has worked out well, with his position up more than 50% since. He said Google “will be a dominant player in AI for the very, very long term”.

While I agree with that statement due to the firm’s mind-boggling amounts of data, there are potential risks here. Google has released Gemini, its own AI chatbot, which has made some very public mishaps.

Moreover, it is far costlier and less profitable for Gemini to generate an answer than traditional search. That’s why Google is reportedly considering putting some of its core AI products behind a paywall.

Despite these risks, Wall Street still sees the firm growing its top line by 10% over the next few years. And the stock’s valuation looks reasonable at 23 times this year’s forecast earnings.

That’s cheaper than all the other ‘Magnificent Seven’ members: Apple (25.7), Amazon (43.1), Meta (25.5), Microsoft (36), Nvidia (34.8), and Tesla (55.1).

Therefore, Alphabet shares could be worthy of consideration for a portfolio (I invested in early 2023).

Chipotle

Similar to Alphabet, Ackman first invested in shares of Chipotle back in 2016 when they were going through a rough patch. This followed food poisoning outbreaks at some of its restaurants in 2015.

The stock has been a monster winner since then, proving that Ackman has a real knack for spying lucrative opportunities.

Created with Highcharts 11.4.3Chipotle Mexican Grill PriceZoom1M3M6MYTD1Y5Y10YALL11 Apr 201911 Apr 2024Zoom ▾Jul '19Jan '20Jul '20Jan '21Jul '21Jan '22Jul '22Jan '23Jul '23Jan '242020202020212021202220222023202320242024www.fool.co.uk

Chipotle’s organically grown produce and rejection of preservatives or artificial flavours (and freezers and microwaves) has resonated with customers, separating it from the competition. As a result, earnings growth has been strong for years.

Unfortunately, that growth comes with a hefty price tag today. At $2,965, the stock is trading at 66 times earnings. I wouldn’t invest at that price.

However, I’m happy to hold Pershing Square shares, and expect Ackman to sniff out more such bargains in future.

But here’s another bargain investment that looks absurdly dirt-cheap:

Like buying £1 for 31p

This seems ridiculous, but we almost never see shares looking this cheap. Yet this Share Advisor pick has a price/book ratio of 0.31. In plain English, this means that investors effectively get in on a business that holds £1 of assets for every 31p they invest!

Of course, this is the stock market where money is always at risk — these valuations can change and there are no guarantees. But some risks are a LOT more interesting than others, and at The Motley Fool we believe this company is amongst them.

What’s more, it currently boasts a stellar dividend yield of around 10%, and right now it’s possible for investors to jump aboard at near-historic lows. Want to get the name for yourself?

See the full investment case

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.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Ben McPoland has positions in Alphabet, Ashtead Group Plc, Pershing Square, and Tesla. The Motley Fool UK has recommended Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla. 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.

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