Billionaire Bill Ackman Has 45% of His Hedge Fund's $13.4 Billion Portfolio Invested in Just 3 Stocks

Bill Ackman likes to focus on just a few companies at a time. His hedge fund, Pershing Square Capital, invests in high-quality businesses with stocks that Ackman feels have become mispriced relative to their intrinsic value. He then uses his sway as a large shareholder to influence management and unlock value.

Ackman's activist investor strategy requires a highly concentrated portfolio. He needs to buy enough of a company to have some say, and his attention and influence can only be spread so thin. As a result, over 45% of Pershing Square's $13.4 billion portfolio is invested in just three companies.

Ackman's focus on long-term value makes all three of these stocks potential candidates for individual portfolios.

1. Alphabet (16.5%)

Ackman bought shares of Alphabet (GOOG -1.55%) (GOOGL -1.45%) as many investors expressed strong concerns about how artificial intelligence (AI) will impact the core Google Search business. With apps like ChatGPT and Perplexity gaining popularity, it seemed like they would eventually displace Alphabet's cash cow.

Ackman holds about $2.2 billion worth of the company across Alphabet's Class A and Class C shares as of this writing. He slightly trimmed his positions in the second quarter, but the strong performance of the stock has ensured it stays at the top of his holdings.

Alphabet's recent price performance is well justified. While many still believe AI chatbots like ChatGPT represent a threat to Google, the company has found a way to integrate AI into its search results with great success. Its AI Overview product, which shows an AI generated response to applicable search queries, has increased engagement and user satisfaction, management says.

Other AI-powered innovations are also pushing engagement higher. Circle to Search and Google Lens are seeing growing engagement, particularly in highly monetizable areas like shopping and product discovery. AI helped the "Google Search and other" segment increase 12% last quarter.

Meanwhile, AI spending is helping drive revenue for the Google Cloud division, one of the three major public cloud providers. Google Cloud revenue soared 35% last quarter as more customers adopted its AI Infrastructure and services. The strong revenue growth is finally resulting in meaningful operating profits, which went from a $440 million loss in the third quarter of 2022 to a $1.95 billion profit last quarter.

While Alphabet faces some potential headwinds, including regulatory challenges, the stock is currently trading at an extremely attractive valuation. Despite trading near its all-time high, shares are priced at just over 21 times analysts' 2025 earnings estimates. That's an exceptional price for a company with the growth potential of Alphabet. Investors looking to buy stock in a company closely tied to AI should add Alphabet to the short list.

2. Brookfield (14.4%)

Ackman started acquiring shares in alternative asset management company Brookfield (BN -1.16%) (BN -0.43%) in the second quarter and really loaded up on shares in the third quarter. He holds about $1.9 billion worth of the Canadian-issued shares as of this writing.

Brookfield owns businesses across multiple verticals, including infrastructure, renewable energy, businesses services, real estate, and insurance. Importantly, it has a history of making moves to help unlock the true value of its shares by making them more investable.

In 2020, for example, it created Brookfield Renewable as part of its Brookfield Renewable Partners subsidiary. The move to a corporation from a partnership made it possible for more institutional investors to buy shares in the company, as some pension funds and insurance companies disallow investing in partnerships.

Brookfield spun off its asset management business last year, but it maintains a 73% ownership stake in it. In October, Brookfield Asset Management relocated its headquarters to New York. Additionally, Brookfield's private stake will become publicly tradable shares of the asset management business. Combined, the moves will qualify Brookfield Asset Management for inclusion in U.S. stock indexes. That means more passive index funds will include the stock in their portfolios, driving more buyers for the shares. It's unclear whether Ackman influenced that decision, considering Pershing Square is now the eighth-largest shareholder of Brookfield.

But Brookfield isn't just about making moves to attract more investment capital. The outlook for the business looks strong. Management expects free cash flow growth over the next five years to compound at a rate of more than 20% annually. That would result in $47 billion of total free cash flow for that period. Management said it will retain $36 billion worth for investments and distribute the rest to shareholders as dividends and repurchases.

Brookfield's stock has soared in the second half of 2024 as Ackman has bought shares. Both the U.S. and Canadian shares are up over 40% since the end of June. Despite the strong price appreciation, shares currently trade for just over 15 times distributable earnings over the trailing 12 months. Management believes the shares could be worth 23 times distributable earnings at full value. As such, investors interested in alternative assets may have an opportunity to buy shares of Brookfield while they're undervalued.

3. Hilton (14%)

Ackman's position in Hilton (HLT -0.72%) had a false start in 2016. Shortly after acquiring shares, the stock moved significantly higher in value, prompting Ackman to sell. But he had another opportunity in 2018, and he built a significant position in the hotelier. He took advantage of the sell-off during the COVID-19 pandemic, adding significantly to his position in the first quarter of 2020.

Ackman has been willing to take profits off the table when it comes to Hilton, and he did so again last quarter. Even after selling 18% of Pershing Square's shares, the hedge fund still owns roughly $1.9 billion worth of shares as of this writing.

Ackman's investment thesis for Hilton is still as true today as it was when he wrote about it in 2018. "Hilton's extensive and growing network of brands and properties offers a significant and self-reinforcing value proposition to both guests and hotel owners, which creates a strong competitive moat around the business," he wrote in his letter to shareholders in November of that year. In 2020, he added, "We also believe that the crisis will cause independent hotels to seek an affiliation with global brands like Hilton, which will contribute to the company's long-term growth."

Since the end of 2019, Hilton's total properties have grown from 6,110 to 8,301, a 36% increase. It's expanded its brands to appeal to more consumers, and it's led to more consumers signing up for its loyalty program. It now counts over 200 million Hilton Honors members. The growing property portfolio and Hilton Honors memberships creates a network effect: As more hotels join the program, it attracts more consumers, and vice versa.

Hilton's stock price performance has led shares to trade for an enterprise value-to-EBITDA ratio of about 30 times as of this writing. That's one of its highest valuations outside of the 2020-2021 period when the pandemic skewed results. It's no surprise Ackman is taking some money off the table at this level. Ackman's decision to remain heavily invested in the hotelier shows he remains bullish on the company long term, but investors may want to explore other opportunities with the stock's current price.