The Morning Brief: Pershing Square’s Mysterious New Holdings

January 30, 2017   Stephen Taub


Pershing Square Capital Management’s Bill Ackman teased his investors, and the media, when he disclosed he had taken sizable stakes in two new positions but declined to name the companies. In a 95-page report, the activist — who craves and invites the spotlight — said in late 2016 he used 4 percent of his capital to invest in what he described as a high-quality global business that "generates predictable, recurring cash flow" and has a "best-in-class management team." Ackman added that a buying opportunity materialized due to cyclical and macroeconomic concerns despite the company’s strong long-term growth potential. And although Pershing Square has already enjoyed a 22 percent return on the investment through January 24 based on his average cost for the stock, he believes the investment "is still attractive" at its current price." Hmm.

Ackman also said in early 2017 he plunked down 9 percent of his capital on another position. However, this is all he says about the stock. If Ackman did not take a 5 percent stake in these stocks, he was not required to file a 13D or 13G within ten days after passing that threshold. He also does not need to disclose his quarterly year-end portfolio until February 14, although he could seek a waiver to delay disclosing individual positions. Given that these sizable stakes did not trigger a 13D filing, the targets must be large, recognizable names. Ooh!
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Shares of hedge fund favorite Microsoft jumped 2.4 percent, to close at a new 52-week high of $64.79, after the software and cloud computing giant reported second-fiscal-quarter results that came in above expectations. In response, Barclays raised its price target by a buck, to $71.

"Microsoft is executing well against its plan, growing revenue while exhibiting expense discipline," the investment bank states in a note to clients. "Microsoft’s multi-year journey to become a cloud vendor is finally bearing fruit. Office revenue is growing and was ahead of consensus once again." At the end of the third quarter, the stock was the fourth-most-popular among hedge funds, with at least 209 holders, according to Novus.com. It was the largest U.S. long holding of ValueAct Capital Management and the second-largest U.S. stock long of Eton Park Capital Management and Adage Capital Partners.
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UBS raised its price target on Alphabet’s Class C shares from $960 to $980 after the parent of search giant Google reported mostly strong results for the fourth quarter. In a note to clients, the bank said the report "culminated a year in which core Google’s advertising business outran fears of tough comps and the law of the large numbers." UBS also praised the company’s management. Shares of Google fell 1 percent, to close at $823.31. The C shares were the third most widely-held hedge fund stock, with 221 investors at the end of the third quarter, according to Novus.com.
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Credit Suisse raised its price target on Alliance Data Systems from $163 to $174, even though it lowered its estimates for the marketer of affinity credit cards following the fourth quarter earnings report. The bank cut earnings estimates mostly due to a reduced revenue outlook. Credit Suisse raised several concerns about the company’s credit and growth trends. However, the higher price target reflects a higher sum-of-the-parts estimate for the company. Even so, Barclays cut its price target on the stock from $265 to $255 after trimming earnings estimates, even though it noted quarterly results were in line with its expectations. The stock inched up to close at $222.35. ValueAct Capital is the company’s second-largest shareholder.


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