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Star hedge fund manager Bill Ackman clearly isn’t a big fan of diversification. We can see that in his FTSE 100-listed investment vehicle, Pershing Square Holdings (LSE: PSH). Last we heard, it only held 12 stocks!
However, this concentrated strategy has served Pershing Square shareholders very well. The stock has returned around 120% over the past five years, excluding dividends.
Big bold move
Regulatory filings showed that Ackman initiated a brand new position in the first quarter. The stock he bought was Uber Technologies (NYSE: UBER), the ridesharing and food delivery giant.
Pershing Square snapped up 30.3m shares in the period, making Uber its top holding, worth over $2.2bn.
However, the stock has jumped roughly 23% since the end of March. Assuming Pershing hasn’t sold some shares, which I doubt given the recent purchase and Ackman’s long-term investing philosophy, then Uber would now be worth over 20% of invested assets.
Why is Ackman so bullish?
I think there are number of reasons why Uber looks like an attractive investment over the long run. The first relates to the company’s markedly improved profitability and management under CEO Dara Khosrowshahi.
As Ackman pointed out earlier this year: “Since he joined the company in 2017, Dara Khosrowshahi has done a superb job in transforming the company into a highly profitable and cash-generative growth machine.”
Uber has indeed come a long way since its cash-incinerating years. It has moved from a loss in 2022 to forecast earnings per share of $2.93 this year. Wall Street expects that figure to double by 2030.
Another thing that’s likely to have attracted Ackman is Uber’s push into adjacent markets. These include train and plane ticket bookings, advertisements, and a subscription service. Uber Ads has already surpassed a $1.5bn annual run rate, while Uber One has reached over 30m paying subscribers.
Membership drives multiple long-term benefits to Uber. They spend more and they are more likely to try new services that we introduce. It’s our highest long-term ROI [return on investment] lever by far.
Dara Khosrowshahi
I should disclose that I’m an Uber shareholder. And as an Uber One member too, I can’t remember the last time I used a rival taxi or food delivery firm (Just Eat, Deliveroo, etc). Many moons ago.
The elephant in the room here, though, is the rise of robotaxis, particularly those being trialled by Tesla. If these work safely, then the EV giant could steal market share from Uber. This is a key risk worth monitoring.
However, Ackman and Uber believe that autonomous vehicles (AVs) will not be a winner-takes-all market. And that AV makers will choose to partner with Uber to tap into its massive base of 170m monthly active users.
I think Uber stock is worth considering today.
Pershing itself
What about Pershing Square? Is that also worth looking at? I believe it is (I’m a shareholder here too).
Beyond Uber, it holds high-quality stocks like Hilton Worldwide, Amazon, and investment firm Brookfield. Of course, the highly concentrated portfolio adds risk because a couple of underperformers can seriously drag on returns.
Looking ahead, it seems likely that tariff uncertainty will weigh on global trade and growth, potentially sparking market volatility. However, it’s in such situations that Ackman often makes his best investments.
