You don’t need to be a hedge fund expert to gauge the value of certain stocks.
Investing in stocks can be a solid way to build wealth over time, but with so many companies out there, picking the right one can be tricky. One method to find ideas is to see what successful investors are doing.
Take Bill Ackman, for example. He’s the founder and CEO of Pershing Square Capital Management and has built quite the track record. So, I think it’s worth paying attention to his investment choices.
Right now, let’s explore three of his fund’s largest investments, which together make up about 39.5% of the portfolio: Amazon, Alphabet, and Uber Technologies. It begs the question—should investors consider following Ackman’s choices?
Amazon — 8.73% of the portfolio
Amazon holds a significant 8.73% of the fund (as of Q3), making it an attractive option for long-term investors. The company spans various major sectors, including e-commerce, cloud computing, AI, and digital advertising. Take a look at its e-commerce operations. It makes money through direct-to-consumer sales as well as third-party commission fees.
Even though this might not yield extremely high profits, Amazon is working on changing that through automation to lower costs. Over the next decade, the company is expected to see reduced costs and increased profits in e-commerce. This could lead to better prices for customers, which in turn might boost online traffic and additional advertising income.
Importantly, Amazon’s cloud division is a key growth driver. As noted by CEO Andy Jassy, a whopping 85% of IT spending is still happening on-premises, indicating there’s plenty of room to grow.
Ultimately, Amazon’s unwavering commitment to meeting customer needs is why it has attracted more than 200 million Prime members. This, along with its knack for identifying and chasing high-growth opportunities, positions the company well for long-term success.
Alphabet — 10.52% of the portfolio
Alphabet, accounting for 10.52% of Ackman’s portfolio, is also a robust long-term investment. It leads the search engine market and, interestingly, the rise of AI chatbots hasn’t really diminished its stronghold. In fact, Alphabet has adapted effectively by introducing AI features in its search engine, which seem to have resulted in more queries hitting the platform.
One might argue that this conversational AI aspect allows users to collate search results faster than ever. Alphabet’s advertising kingdom flourishes through Google and YouTube, making it a strong contender. Yet, its cloud division shows exceptional revenue growth, influenced partly by AI-related services. Their cloud segment’s balance hit $155 billion at the end of Q3, up 46% sequentially.
Beyond this, Alphabet is venturing into self-driving tech via its Waymo subsidiary, hinting at appealing long-term prospects. So, it definitely makes sense to consider Ackman’s approach and keep an eye on this stock.
Uber Technologies — 20.25% of the portfolio
Uber Technologies stands out as Ackman’s largest investment, encompassing 20.25% of his fund. This seems like a bold move for the ride-hailing sector’s future.
Is it a wise decision? Personally, I believe so. Uber has delivered impressive financial results along with rapid user and revenue growth. In Q3, the company reported a notable rise in both trips taken and monthly active users.
Plus, Uber’s strong network effect provides it a substantial economic advantage, reinforcing customer loyalty.
The company still has vast growth potential. Younger generations are learning to drive later in life and are on the whole driving less. The reasons behind this trend are varied, but it suggests that services like Uber will be essential to these young adults.
As they age, many might not even feel the need to obtain a driver’s license. That could bode well for Uber’s long-term prospects.
Moreover, Uber’s market penetration remains low. The company estimates that only about 10% of adults in its top 10 markets utilize its services monthly. Given the breadth of its potential customer base and strong competitive edge, Uber appears to be a solid stock to hold onto for a while.
