Friday, February 25, 2011

Shaw Capital Working Management Tips: Bill Ackman And Pershing Square Capital Management ; Top Holdings: JCP, GGP, FO, C, KFT

http://www.gurufocus.com
Feb. 21, 2011 | Filed Under: JCPGGPFOCKFTBGP
William (Bill) Ackman is the hedge fund manager of Pershing Square Capital Management. Mr. Ackman’s father, Lawrence was a real estate investor. Bill Ackman graduated from Harvard in 1992. After college, Ackman founded Gotham Partners. Over the Gotham’s life span, the firm had grossed more than $500 million in assets.
In 2004 Ackman founded Pershing Square Capital Management. The current fund is valued at $5.7 billion. Ackman’s main investment focus is on real estate and retail, which makes up just over 50% of the fund. In January 2011 it was reported the hedge fund had a 29.7% return in 2010. The top 5 companies in the fund’s portfolio are JC Penney (JCP), General Growth Properties (GGP), Fortune Brand Inc (FO), Citigroup (C), and Kraft Foods (KFT).
Borders Group Inc (BGP), was the lowst performer in his portfolio, and as of last week Borders filed for banckrupcy. Ackman currently own 10.6 million shares of Borders. Ackman has lost an estmate of $230 million off of his investment in Borders.
JC Penney (JCP)
On October 8, 2010 Ackman bought 39.7 million shares of JC Penney, equivalent to 16.8% of the company. This transaction also involved Vornado Realty Trust, which bought 9.9% of the company. Together Ackman and Vornado Realty Trust bought 26.7% of JC Penney stock. On January 24, 2011 Bill Ackman and Steve Roth (chairman of the board of Vornado Realty Trust) were appointed as directors of the company.
JC Penney’s market cap is around $8.5 billion. Its current stock price trades around $36.80, with a P/E ratio of 27.46, and a P/S ratio of about .5. JC Penney recorded $17.5 Billion last year in revenue. They also recently paid a quarter divided of $.20. The company makes up about 19.78% of the portfolio.
According to Ackman’s letter to the shareholders for the 3 Quarter of 2010, he is attracted to JC Penney “because of its inexpensive valuation, strong brand name and assets, and well-deserved reputation for overseas sourcing, high quality systems, and large in-house brands.” His average price of purchasing was around $25.28. Meaning Ackman has already accumulated a return of around 23.5%. Recently JC Penney (under the influnce of Ackman) has recently decided to cease its catalog and outlet operations. They want to focus on store to store sales, and want to move a way from expanding on its standalone stores and concentrate on JC Penney’s retail mall stores . Ackman hopes to monitor improvements and restructuring of the company as being a member of their board.
Fortune Brands (FO)
Fortune Brands is an industrial conglomerate. It has been split up into three different industries: Spirits (alcohol/liquor), Home and Securities (faucets, cabinets, doors, windows, and locks), and Golf (Titliest and FootJoy Brands)
Fortune Brands’ market cap is around $9.61 billion. Its current stock price trades around $62, with a P/E ratio of 19.83, and a P/S ratio of about 1.45. Fortune Brands recorded $6.57 billion last year in revenue. They also recently paid a quarter divided of $.19 The Company makes up about 17.61% of the hedge fund.
Ackman believes very strongly in the Fortune’s Spirit and Home and Security businesses. In his 3Q 2010 letter he believes Fortune’s Sprits are a good investment because they are “great consumer categories given its strong and sustainable profit margins, high barriers to entry, economic resiliency, and limited exposure to mass merchants.”
He also states that Home and Security are great because it has “reduced its cost structure and gained significant share in the downturn; we think the business is extremely well positioned for a rebound.” Ackman also believe that Fortune’s golf brands are the top brands in the industry.
General Growth Properties Inc (GGP)
General Growth Properties is a Real Estate Investment Trust (REIT) and was spun off from Howard Hughes Corporation (another stock Ackman owns). The Company’s main focus is shopping malls. Their involved in over 200 shopping malls in the United States.
General Growth Properties’ market cap is around $5.1 billion. Its current stock price trades around $15.65, with a forward P/E ratio of around 16.25, and a P/S ratio of about 4.69. Fortune Brands recorded $3.16 billion last year in revenue. They also paid a divided of $.38 in December 2010. The company makes up about 18.99% of the hedge portfolio.
Ackman believes malls are very valuable assets. He strongly believes that majority of shopping in the United States still takes place in shopping malls. Ackman also believes that there will be slow growth in building new malls, because of their large amounts of financial capital. So this is why he believes Gen. growth properties is a valuable investment.
Citigroup Inc (C)
Citigroup has posted strong earnings over its last few quarters. Ackman has seen their quality of credit improve over the last several quarters. Citigroup has targeted 2012 as the year they will start repaying out dividends. Ackman believes that this will have a positive effect for the long-term shareholders. He believes that Citi has great management, and that they are a good fit in reaching Citi’s targeted goals.
Citigroup ‘s market cap is around $142.68 billion. Its current stock price trades around $4.91, with a P/E ratio of around 14.11, and a P/S ratio of about 2.34. Fortune Brands recorded $61.41 billion last year in revenue. The company makes up about 12.15% of the portfolio.
Kraft Corporation. (KFT)
Kraft is apart of the Food Processing Industry. After purchase Cadbury, Kraft is now one of the largest snack companies in the world. Kraft plans to grow its sales by using Cadbury’s presence in emerging markets to promote and sell Kraft products. However Ackman has reduced his investment in Kraft in order to raise capital for his purchase of JC Penney and Fortune Brands.
Kraft ‘s market cap is around $53.99 billion. Its current stock price trades around $30.91, with a P/E ratio of 12.90, and a P/S ratio of about 1.10. Kraft recorded $49.21 billion last year in revenue. They also recently paid a quarter divided of $.29. The Company makes up about 10.76% of the portfolio.

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