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Bill Ackman's Favorite "Magnificent 7" Stock is a Big Winner
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To make smart money, astute investors should keep an eye on the regulatory filings of the top money managers. Most of them have significant exposure to the so-called magnificent seven stocks — Microsoft, Apple, NVIDIA, Amazon, Google parent Alphabet, Meta Platforms and Tesla, as well as other noteworthy AI stocks.
But this isn’t the case for billionaire hedge fund manager Bill Ackman, the CEO of Pershing Square Capital Management. He is well-known for keeping a selective number of stocks in his investment portfolio and takes positions in businesses with solid growth prospects. These businesses can also protect themselves from uncontrollable incidents.
According to the latest SEC filings, Bill Ackman has invested around $10 billion in the equity market with exposure to only seven different types of stocks. Only one of them is a magnificent seven tech stock — Alphabet Inc. (GOOGL - Free Report) . The company accounts for nearly 19% of Pershing Square Capital Management’s holdings and is also the hedge fund’s largest investment.
Over the past year, Bill Ackman placed bets on Alphabet as the hedge fund titan saw a money-spinning growth opportunity and an unparalleled business model. Let us, thus, look at why Bill Ackman is an admirer of Alphabet, whose shares have gained almost neck and neck with the Internet - Services industry year to date (+19% versus +20%).
Image Source: Zacks Investment Research
The search engine powerhouse recently posted a first-quarter net income of $23.66 billion, which is more than $15.5 billion a year ago. Net income trounced analysts’ estimates, banking on improvement in the advertising business.
Bill Ackman, however, believes that Alphabet’s advertising business will bear stiff challenges soon. After all, one of Alphabet’s most visited websites — YouTube — faces competition from Meta Platforms, Inc.’s (META - Free Report) Facebook and Instagram platforms, as well as from Snap Inc. (SNAP - Free Report) and Pinterest, Inc. (PINS - Free Report) .
For that very reason, Alphabet has diversified its business and ventured into the cloud computing space, a bold move appreciated by Ackman. Needless to say, the cloud computing market is estimated to increase at a CAGR of 16.5% to $2,291.59 billion in 2032 from $676.29 billion in 2024, per Fortune Business Insights.
By the way, Alphabet’s foray into AI has proved to be disastrous. The company’s chatbots Bard and Gemini received criticism from users. Ackman rightfully pointed out that other generative AI models have also shown similar erroneous responses.
Moreover, the AI industry is just flourishing, and Alphabet is quite capable of improving its AI models. Lest we forget, the AI market is expected to see a CAGR of 28.46% from 2024 to 2030 and achieve a market volume of $826.7 billion by 2030, according to Statista.
Bill Ackman, meanwhile, believes that Alphabet has a dominant position in the market. This is because Alphabet’s search engine platform — Google — has very few competitors. Additionally, the company boasts a profitable business.
To put things into perspective, Alphabet has been proficiently making profits since it has a return on equity of 29.5%, which is considered good. The net profit margin is also 25.9%, above the threshold of 20%, a tell-tale sign that the company has kept operating costs under control and generated enough profit from sales.
Another reason why Alphabet is an enticing prospect for Bill Ackman is its huge cash balance, which protects the stock from market upheavals. As of Mar 31, 2024, Alphabet’s cash and cash equivalents were a whopping $108.1 billion. Such a strong cash balance will help the company to grow through various strategies including acquisitions.
In reality, the company’s expected earnings growth rate for the current and next year is 17.6% and 15.1%, respectively. The Zacks Consensus Estimate for Alphabet’s current-year earnings has also moved up 0.6% over the past 60 days.
From a valuation standpoint, the stock seems to be a bargain for Ackman. Alphabet’s Price/Earnings ratio is less than the industry average, an indication that the stock is undervalued compared to its peers. Alphabet presently trades at 25.2 forward earnings. The industry’s forward earnings multiple, on the other hand, is 26.4.
Thus, Alphabet rightfully sports a Zacks Rank #1 (Strong Buy) due to solid growth potential, supremacy, financial stability and attractive valuations. You can see the complete list of today’s Zacks Rank #1 stocks here.
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Bill Ackman's Favorite "Magnificent 7" Stock is a Big Winner
To make smart money, astute investors should keep an eye on the regulatory filings of the top money managers. Most of them have significant exposure to the so-called magnificent seven stocks — Microsoft, Apple, NVIDIA, Amazon, Google parent Alphabet, Meta Platforms and Tesla, as well as other noteworthy AI stocks.
But this isn’t the case for billionaire hedge fund manager Bill Ackman, the CEO of Pershing Square Capital Management. He is well-known for keeping a selective number of stocks in his investment portfolio and takes positions in businesses with solid growth prospects. These businesses can also protect themselves from uncontrollable incidents.
According to the latest SEC filings, Bill Ackman has invested around $10 billion in the equity market with exposure to only seven different types of stocks. Only one of them is a magnificent seven tech stock — Alphabet Inc. (GOOGL - Free Report) . The company accounts for nearly 19% of Pershing Square Capital Management’s holdings and is also the hedge fund’s largest investment.
Over the past year, Bill Ackman placed bets on Alphabet as the hedge fund titan saw a money-spinning growth opportunity and an unparalleled business model. Let us, thus, look at why Bill Ackman is an admirer of Alphabet, whose shares have gained almost neck and neck with the Internet - Services industry year to date (+19% versus +20%).
Image Source: Zacks Investment Research
The search engine powerhouse recently posted a first-quarter net income of $23.66 billion, which is more than $15.5 billion a year ago. Net income trounced analysts’ estimates, banking on improvement in the advertising business.
Bill Ackman, however, believes that Alphabet’s advertising business will bear stiff challenges soon. After all, one of Alphabet’s most visited websites — YouTube — faces competition from Meta Platforms, Inc.’s (META - Free Report) Facebook and Instagram platforms, as well as from Snap Inc. (SNAP - Free Report) and Pinterest, Inc. (PINS - Free Report) .
For that very reason, Alphabet has diversified its business and ventured into the cloud computing space, a bold move appreciated by Ackman. Needless to say, the cloud computing market is estimated to increase at a CAGR of 16.5% to $2,291.59 billion in 2032 from $676.29 billion in 2024, per Fortune Business Insights.
By the way, Alphabet’s foray into AI has proved to be disastrous. The company’s chatbots Bard and Gemini received criticism from users. Ackman rightfully pointed out that other generative AI models have also shown similar erroneous responses.
Moreover, the AI industry is just flourishing, and Alphabet is quite capable of improving its AI models. Lest we forget, the AI market is expected to see a CAGR of 28.46% from 2024 to 2030 and achieve a market volume of $826.7 billion by 2030, according to Statista.
Bill Ackman, meanwhile, believes that Alphabet has a dominant position in the market. This is because Alphabet’s search engine platform — Google — has very few competitors. Additionally, the company boasts a profitable business.
To put things into perspective, Alphabet has been proficiently making profits since it has a return on equity of 29.5%, which is considered good. The net profit margin is also 25.9%, above the threshold of 20%, a tell-tale sign that the company has kept operating costs under control and generated enough profit from sales.
Another reason why Alphabet is an enticing prospect for Bill Ackman is its huge cash balance, which protects the stock from market upheavals. As of Mar 31, 2024, Alphabet’s cash and cash equivalents were a whopping $108.1 billion. Such a strong cash balance will help the company to grow through various strategies including acquisitions.
In reality, the company’s expected earnings growth rate for the current and next year is 17.6% and 15.1%, respectively. The Zacks Consensus Estimate for Alphabet’s current-year earnings has also moved up 0.6% over the past 60 days.
From a valuation standpoint, the stock seems to be a bargain for Ackman. Alphabet’s Price/Earnings ratio is less than the industry average, an indication that the stock is undervalued compared to its peers. Alphabet presently trades at 25.2 forward earnings. The industry’s forward earnings multiple, on the other hand, is 26.4.
Thus, Alphabet rightfully sports a Zacks Rank #1 (Strong Buy) due to solid growth potential, supremacy, financial stability and attractive valuations. You can see the complete list of today’s Zacks Rank #1 stocks here.