Billionaire Bill Ackman has 45% of his hedge fund’s $13.4 billion portfolio invested in just three stocks.

Bill Ackman likes to focus on just a few companies at a time. His hedge fund, Pershing Square Capital, invests in high-quality companies, with stocks that Ackman believes are mispriced relative to their intrinsic value. He then uses his influence as a majority shareholder to influence management and create value.

Ackman’s activist investor strategy requires a highly concentrated portfolio. He would have to buy enough of the company to have any say, and his interest and influence would inevitably be spread too thinly. As a result, more than 45% of Pershing Square’s $13.4 billion portfolio was invested in just three companies.

Ackman’s focus on long-term value makes all three of these stocks potential candidates for individual portfolios.

1. Alphabet (16.5%)

Ackman bought the stock. alphabet (GOOG -0.53%) (google -0.63%) That’s because many investors have expressed strong concerns about how artificial intelligence (AI) will impact Google’s core search business. As apps like ChatGPT and Perplexity gained popularity, it looked like they might eventually replace Alphabet’s cash cow.

As of this writing, Ackman owns about $2.2 billion worth of the company in all of Alphabet’s Class A and Class C shares. He reduced his position slightly in the second quarter, but the stock’s strong performance kept it at the top of his holdings.

Alphabet’s recent price performance is well justified. Although many people still believe that AI chatbots like ChatGPT pose a threat to Google, Google has found great success by finding ways to integrate AI into its search results. The AI ​​Overview product, which shows AI-generated responses to given searches, has increased engagement and user satisfaction, executives say.

Other AI-based innovations are also increasing engagement. Circle to Search and Google Lens are seeing increased engagement, especially in monetizable areas like shopping and product search. AI helped ‘Google Search & More’ grow by 12% last quarter.

Meanwhile, AI spending is helping drive revenue for its Google Cloud division, one of the top three public cloud providers. Google Cloud revenue grew 35% last quarter as more customers adopted AI infrastructure and services. Strong revenue growth has finally resulted in meaningful operating profits, which grew from a loss of $440 million in the third quarter of 2022 to a profit of $1.95 billion last quarter.

Although Alphabet faces some potential headwinds, including regulatory issues, the stock currently trades at a very attractive valuation. Despite trading near record highs, the stock is priced at just over 21 times analysts’ 2025 earnings estimates. This is an unprecedented price for a company with growth potential like Alphabet. Investors looking to buy shares of companies closely related to AI should add Alphabet to their shortlist.

2. Brookfield (14.4%)

Ackman began acquiring shares of alternative asset management companies. Brookfield (BN -0.24%) (BN 0.19%) Stocks increased a lot in the second quarter, and stocks increased a lot in the third quarter. He owns approximately $1.9 billion worth of Canadian shares outstanding as of this writing.

Brookfield owns businesses across a variety of industries, including infrastructure, renewable energy, business services, real estate, and insurance. What’s important is that we have a history of taking steps to increase the investability of our stocks and help them realize their true value.

For example, in 2020 Brookfield Playable as part of that Brookfield Play Partners subsidiary company. Converting from a partnership to a corporation allows more institutional investors to purchase the company’s stock, as some pension funds and insurance companies do not allow partnership investments.

Brookfield spun off its asset management business last year but maintains a 73% stake. In October Brookfield Asset Management Headquarters moved to New York. Additionally, Brookfield’s private stake will become a publicly tradable share of the asset management business. The combination of these moves would make Brookfield Asset Management eligible for inclusion in U.S. stock indices. This means more passive index funds will include stocks in their portfolios, which will lead to more buyers buying them. It’s unclear whether Ackman had any influence on that decision, given that Pershing Square is now Brookfield’s eighth-largest shareholder.

But Brookfield isn’t just taking steps to attract more investment capital. The business outlook looks bright. Management expects free cash flow to grow by more than 20% per year over the next five years. That would bring total free cash flow for the period to $47 billion. Management said it would retain $36 billion worth of the investment and distribute the remainder to shareholders through dividends and share buybacks.

Brookfield’s stock price soared in the second half of 2024 as Ackman purchased shares. U.S. and Canadian stock markets are up more than 40% since the end of June. Despite the strong price gains, the stock currently trades for just over 15 times its distributable earnings over the past 12 months. Management believes the shares could be worth as much as 23 times distributable earnings at full value. Therefore, investors interested in alternative assets may have the opportunity to buy Brookfield’s stock while it is undervalued.

3. Hilton (14%)

Ackman’s position hilton (HLT -1.08%) I got off to a false start in 2016. Shortly after acquiring the shares, the stock price rose significantly, causing Ackman to sell. But in 2018, another opportunity presented itself to him, and he established himself a significant position in the hotelier ranks. He took advantage of the selloff during the COVID-19 pandemic to significantly strengthen his positions in the first quarter of 2020.

Ackman has been willing to take advantage when it comes to Hilton, and he did so last quarter. After selling 18% of Pershing Square stock, the hedge fund still holds approximately $1.9 billion worth of the stock as of this writing.

Ackman’s investment thesis for Hilton remains as relevant today as it did when he wrote it in 2018. “Hilton’s extensive and growing network of brands and properties provides a significant and self-reinforcing value proposition for both guests and hotel owners and a strong competitive moat surrounding the business,” he wrote in a letter to shareholders that November. . He added that in 2020, “we also believe the crisis will lead independent hotels to seek partnerships with global brands like Hilton, contributing to the company’s long-term growth.”

Since the end of 2019, Hilton’s total properties have increased 36%, from 6,110 to 8,301. We expanded our brand to attract more consumers, and more consumers signed up for our loyalty program. There are currently more than 200 million Hilton Honors members. Our growing hotel portfolio and Hilton Honors membership create network effects. The more hotels that join the program, the more consumers they will attract and vice versa.

Hilton’s stock price performance has resulted in the stock trading at an enterprise value-to-EBITDA ratio of approximately 30x as of this writing. This is one of the highest valuations outside of the 2020-2021 period, when the results were distorted by the pandemic. It wouldn’t be surprising to see Ackman take some money away from this level. Ackman’s decision to remain heavily invested in the hotelier demonstrates his long-term optimism about the company. However, investors may want to explore other opportunities at the stock’s current price.