Diversification, schmiversification. That seems to be the attitude of billionaire hedge fund manager Bill Ackman. His Pershing Square Capital Management owns a total of 10 stocks. Two of those stocks are different share classes of the same company -- Alphabet.
Ackman didn't initiate any new positions in the third quarter of 2024. However, he did buy more of two dividend stocks hand over fist.
A global investment company with an impeccable track record
Going into Q3, Brookfield Corporation (NYSE: BN) wasn't anywhere close to being Ackman's largest holding. But the global investment company stood at the top by the end of the quarter (at least, if we don't lump his stakes in Alphabet Class A and Class C shares together).
Pershing Square bought roughly 25.9 million shares of Brookfield in Q3, increasing its stake by almost 378%. The stock now makes up 13.5% of the hedge fund's portfolio.
Brookfield is a dividend stock, but I doubt there's an income investor on the planet who would get excited about the company's dividend. The forward dividend yield is a paltry 0.55%.
Investors might be enthusiastic about Brookfield's returns, though. The stock has grown at a compounded annual rate of around 18% over the last 30 years. Over the last 12 months alone, Brookfield's shares have skyrocketed 70%.
A footwear and apparel maker Ackman seems to think can "just do it"
Nike (NYSE: NKE) ranked among Ackman's smallest holdings before July 2024. However, the billionaire owns a much bigger stake in the footwear and apparel giant now. Pershing Square bought over 13.2 million shares of Nike in Q3, increasing its position by roughly 436%.
Income investors will find more to like with Nike than they will with Brookfield Corporation. Nike's forward dividend yield is a respectable 2.11%. Believe it or not, that's the second-highest dividend yield in Ackman's portfolio.
Unlike Brookfield, though, Nike hasn't made shareholders very happy recently. The stock is down 30% over the last 12 months. It's nearly 60% below the peak set in late 2021.
In Nike's latest quarter, revenue fell 10% year over year. Diluted earnings per share plunged 26%. The company brought in a new CEO in October in the hopes of righting the ship.
Since the late 1980s, Nike's slogan has been "Just Do It." Ackman seems to think the company will be able to make that phrase a reality by turning things around. He might have to be patient. CFO Matthew Friend said last month: "A comeback at this scale takes time."
Are Brookfield and Nike smart picks now?
I suspect Ackman knows what he's doing with his aggressive purchases of Brookfield and Nike. However, my view is that most investors will only find one of these two stocks a smart pick right now -- and it isn't Nike. Investing in turnaround stories isn't for the faint of heart.
Many growth investors should like Brookfield, though. Management believes the company is in a stronger position now to deliver returns of 15% or more per year on average than ever before. That's saying something considering Brookfield's impressive past performance. The secrets to the company's success include investing in good businesses, running those businesses well, allocating capital wisely, getting employees in alignment with long-term objectives, and adapting to change. Brookfield should be able to continue doing all of them.
But if you're really wanting juicy dividends, Brookfield's operating businesses could be more up your alley. For example, Brookfield Renewable Partners LP (NYSE: BEP) offers a forward distribution yield of 5.56%, while its corporate entity Brookfield Renewable (NYSE: BEPC) has a forward yield of 4.47%.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Keith Speights has positions in Alphabet, Brookfield Renewable, and Brookfield Renewable Partners. The Motley Fool has positions in and recommends Alphabet, Brookfield, Brookfield Corporation, and Nike. The Motley Fool recommends Brookfield Renewable and Brookfield Renewable Partners. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
