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Published: September 8, 2010
Investors mine ideas from many different
sources, but many investors overlook a resource that provides
some of the best ideas from the greatest minds. Most people
believe that the world of hedge funds is not within their grasp.
In truth, some of the best stock-pickers make their choices
widely available, if you know where to look.
There is benefit to mining for opportunity by checking out the
portfolio holdings of top
mutual fund managers, but the problem with this approach is
the fund literature rarely provides detailed analysis about
selected stocks.
However, over at websites such as Gurufocus.com and
MarketFolly.com, hedge fund presentations provide exquisite
detail about stock investments and are available free of charge.
One of the great hedges operating today is the man who pried
open the credit market scheme run by MBIA, Inc. (NYSE: MBI).
William Ackman of Pershing Square Capital Management provides
rigorous
fundamental analysis that every investor should read.
No matter how much research the average investor does regarding
a company, he simply cannot match the depth of analysis of a guy
like Ackman. If you examine some of his firm's presentations,
you'll understand why.
Plus, Ackman's track record is extraordinary. His fund has
returned +24% annually since 2002, and that includes the
horrible crash the market endured in 2008. That's why I buy some
of his holdings for my own portfolio. Here are a few of his
current picks and why he thinks (and I agree) that they are
profitable opportunities.
Target Corp. (NYSE: TGT). Ackman started a
proxy war to get Target to become a more responsive company
and to get rid of its risky credit card operation. Although he
lost, Target management got the message. They've made a lot of
changes and the stock is on the move. With +13% projected
long-term growth and a
P/E of 14.5, the stock is primed to
return about +15% compounded annually, which would mean a double
in the next five to six years.
Kraft Foods (NYSE: KFT). Ackman loved Kraft's purchase of
Cadbury. He believes Cadbury's multitude of brand names will
bolster Kraft's own portfolio, leading to higher organic growth.
The company expects $750 million in
synergy savings and Ackman believes margins, which had been
declining every year, will make a comeback from 12.6% to 15%. He
also expects Cadbury to generate 40% of its sales from emerging
markets. Kraft could return +12% to +14% annually during the
next several years, and it also pays a solid 4%
dividend.
Yum! Brands (NYSE: YUM) includes the
iconic restaurants of Kentucky Fried Chicken, Taco Bell and
Pizza Hut, among others. Ackman sees consistent +10% to +13%
earnings growth during the next five years, as the economy
drives people to lower cost restaurant choices. The company
generates mid-nine-figure
free cash flow each year.
General Growth Properties (NYSE: GGP). This is an
impressive success for Ackman. The company, which owns and
develops shopping centers, was on the verge of bankruptcy when
Ackman bought in at $1. Correctly predicting that there would be
shareholder value after the bankruptcy filing, he has seen a
13-fold increase in his investment. Ackman thinks the company is
worth $20, which is about +35% higher than its current price.
Corrections Corporation of America (NYSE: CXW). Ackman
thinks the nation's largest private prison operator (48% market
share) has growth ahead of it. State and federal prisons are
overcrowded, crime increases during a recession, prison
populations are therefore increasing, and the company has more
than enough capital to take on expansion. Ackman thinks the
company is worth as much as $54, which is about +135% above
current prices.
Action to Take --> William
Ackman doesn't just make little bets on stocks -- he makes
massive ones. He holds between 10 million and 30 million shares
of each of these stocks, representing billions of dollars of
faith in each company. If his track record was questionable, I
wouldn't bother, but Ackman is a proven winner.
Ackman has other holdings, but these are the ones I find most
compelling and worthy of further research. Any of these stocks
would make fine core portfolio components.
-- Melvin Halcomb
Contributor
StreetAuthority |
