Bill Ackman has announced six new stock picks added to the Pershing Square USA (NYSE:PSUS) investment portfolio, which is now publicly traded as ticker PSUS. While the recent addition of Netflix Inc (NASDAQ:NFLX) stock is getting the headlines, two other stocks are Warren Buffett favorites and now pit Pershing Square against Buffett’s successor.
• What’s the outlook for PSUS shares?
Bill Ackman vs. Greg Abel
New Berkshire Hathaway Inc (NYSE:BRK)(NYSE:BRK) CEO Greg Abel may have surprised many investors with a first-quarter 13F that showed the conglomerate exiting many long-held positions previously bought by Buffett.
Among the stock positions exited in the first quarter were credit card companies Visa Inc (NYSE:V) and Mastercard Inc (NYSE:MA). Those two stocks were the 14th and 15th largest holdings in the fourth quarter, the last with Buffett as CEO.
Abel sold 8,297,460 shares of Visa and 3,986,648 Mastercard shares in the first quarter, exiting both companies completely. These positions would have been worth $2.91 billion and $2.28 billion at the end of the first quarter, the largest complete exited positions by dollar value by Berkshire Hathaway in the quarter.
Enter Ackman. Ahead of Friday’s 13F filing deadline, Ackman’s Pershing Square Inc (NYSE:PS) hedge fund has reported quarterly financial results and announced new stock positions. PS is the ticker for the parent company Pershing Square, an asset management company that collects fees from its underlying entities.
Pershing Square bought six new stocks in the quarter. Netflix is getting the headlines as Ackman famously owned the stock years ago only to cash out too soon and lose around $400 million.
Ackman also announced stakes in Visa and Mastercard in the second quarter. While it is unknown how large the stakes are, investors will find out in due time, with the Pershing Square 13F coming by Friday.
An early look at the two stocks shows that Ackman could be the early winner.
Visa stock traded at $301.06 at the end of the first quarter. The stock ended the second quarter at $343.09. This means the stock is up 14% from the end of the second quarter to the end of the first and up 19.5% from now through the end of the first quarter.
Mastercard stock traded at $497.97 at the end of the first quarter. The stock ended the second quarter at $513.66. This means the stock is up 3.1% from the end of the second quarter to the end of the first and up 12.3% from now through the end of the first quarter.
Ackman has already locked in gains from the end of the second quarter, while Buffett’s successor missed on double-digit percentage gains from the first quarter to now.
Ackman Makes the Case
In the Pershing Square quarterly letter, Ackman shares an investment thesis on his six new stock positions. Lumped together as "the Card Networks," Ackman highlights Visa and Mastercard as being "two business we long admired."
"Visa and Mastercard, which provide the dominant global networks for consumer and commercial payments, with an increasing share of revenue growth coming from value-added services," Ackman said.
The hedge fund manager said both are "capital light" and act as "toll-takers," earning fees on each transaction.
"In our view, Visa and Mastercard are among the highest-quality businesses in the world."
Ackman said card volumes represent around half of addressable consumer spending globally, giving upside as they take share from legacy payment methods like cash and as ecommerce continues to grow.
The investor sees upside in the stocks as they trade at 23x (Visa) and 24x (Mastercard) forward earnings estimates and should have double-digit revenue growth in the coming years.
"We expect both businesses to generate attractive returns for years to come."
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