Pershing Square Holdings: Deep-Value Play For Long-Term Investors

Pershing Square Holdings: Deep-Value Play For Long-Term Investors

Key Points

  • Pershing Square Holdings is a closed-ended hedge fund managed by Pershing Square Capital Management. 
  • The fund invests in undervalued large-cap stocks with steady cash flow and uses hedging and other strategies to maximize returns and minimize risk. 
  • The fund is trading at a deeper-than-normal discount to NAV which is setting up a buying opportunity. 
  • 5 stocks we like better than Restaurant Brands International

If the name Pershing Square Holdings Ltd (OTCPINK: PSHZF) sounds familiar it should. It is a closed-ended hedge fund traded on the OTC pink sheets (in the US) and headquartered in London (where it trades on the London Stock Exchange). The fund was launched by Pershing Square Capital Mgt, one of the world's most prominent hedge fund investment firms, which was founded by Bill Ackman, one of the world’s most prominent investors. The fund is intended to provide a balanced exposure to global equity and fixed-income markets, presumably with the experience of Mr. Ackman and Pershing Square Capital Management guiding the investments, and returns capital to shareholders in the form of capital appreciation, dividends, and share repurchases.  

What, Exactly, Is Pershing Square Holdings Ltd? 

Pershing Square Holdings Ltd is a closed-end fund investing in global equity and fixed-income markets. The equity portion of the portfolio is the largest and tends to be static and based on 8-12 core holdings. New holdings are added every 3-6 months as market conditions allow and tend to be stable, large-cap companies operating in North America. 

The firm likes to invest in large, non-controlling interests in companies that they view as having limited downside, offer a value, provide stable and predictable cash flow, and may also come with some other attractive quality such as merger or acquisition potential. Since its inception, this strategy has resulted in a 16.1% annualized return compared to the primary benchmark which is the S&P 500 (NYSEARCA: SPY). The S&P 500 returned only 9.7% in the same time span so there are advantages to this investment vehicle. 

Pershing Square Holdings also uses derivative and fixed-income investment vehicles to enhance and hedge its positions. The latest company report states a new hedge was initiated in the summer of 2022 in the form of an interest-rate swaption that is already providing capital protection. Pershing Square Holdings will also invest in alternative vehicles when it suits the manager and uses leverage to maximize its returns. The total leverage in mid-2022 was running at only 18.8%, however, which is low and backed up by a liquid portfolio of heavily-traded names. 


Pershing Square Holdings Ltd Is Not Without Risks 

Persing Square Holdings Ltd has a long track record of success but it is not without risks. At present, the company’s holdings and performance are down double-digits on a YOY basis and underperforming the S&P 500 by a fair margin. The company views this as a dislocation in the market and one that will correct itself over time, however, because of the fundamental strength of core holdings. Core holdings, it was also noted, are all producing solid cash flow and growth despite the downturn in the market this year. Along with market conditions, the fund is also susceptible to large losses as happened with Netflix early in 2022. The firm believed Netflix (NASDAQ: NFLX) to be undervalued, entered a large position, and then quickly exited it following the Q2 earnings results. Those results led the stock to fall 26% overnight. 

There Is A Deep-Value Opportunity In Pershing Square Holdings Ltd

Pershing Square Holdings Ltd trades at discount to its NAV or net asset value which is common for a closed-end fund. The discount to NAV can provide a means of buying a high-quality stock at a discount and that is true here as well. The company is trading at a 35% (roughly) discount to its NAV which is a very attractive discount for names like Universal Music Group (OTC: UMGNF), Restaurant Brands International (NYSE: QSR), Chipotle Mexican Grill (NYSE: CMG), and Lowe’s (NYSE: LOW) which are all core holdings. The downside is that the discount to NAV can be a value trap because the discount may never narrow, but Pershing Square Holdings' 35% discount is well above average and suggests oversize returns are possible. Not only will Pershing Square Holdings Ltd's share prices rebound when the market rebounds but the discount should narrow and it could easily move to the other extreme, narrower than historical data suggests is right for this fund. 

Pershing Square Holdings: A Deep-Value Play For Long-Term Investors

Should you invest $1,000 in Restaurant Brands International right now?

Before you consider Restaurant Brands International, you'll want to hear this.

MarketBeat keeps track of Wall Street's top-rated and best performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat has identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market catches on... and Restaurant Brands International wasn't on the list.

While Restaurant Brands International currently has a "Moderate Buy" rating among analysts, top-rated analysts believe these five stocks are better buys.

View The Five Stocks Here

Elon Musk's Next Move Cover

Wondering when you'll finally be able to invest in SpaceX, StarLink, or The Boring Company? Click the link below to learn when Elon Musk will let these companies finally IPO.

Get This Free Report

Companies Mentioned in This Article

CompanyMarketRank™Current PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
Restaurant Brands International (QSR)
1.0846 of 5 stars
C$100.86-0.7%3.11%19.74BuyC$87.00
Chipotle Mexican Grill (CMG)
3.9737 of 5 stars
$2,923.32+0.3%N/A65.91Moderate Buy$2,759.14
Hilton Worldwide (HLT)
4.5499 of 5 stars
$204.70+3.9%0.29%47.27Moderate Buy$201.78
Lowe's Companies (LOW)
4.6839 of 5 stars
$230.31-1.4%1.91%17.50Hold$252.52
Pershing Square (PSHZF)
0 of 5 stars
$49.85+0.1%1.16%N/AN/A
Restaurant Brands International (QSR)
4.6325 of 5 stars
$73.60-1.0%3.15%19.52Moderate Buy$82.25
Compare These Stocks  Add These Stocks to My Watchlist 

Thomas Hughes

About Thomas Hughes

  • tmhughes.writeon@gmail.com

Contributing Author

Technical and Fundamental Analysis

Experience

Thomas Hughes has been a contributing writer for MarketBeat since 2019.

Areas of Expertise

Technical analysis, the S&P 500; retail, consumer, consumer staples, dividends, high-yield, small caps, technology, economic data, oil, cryptocurrencies

Education

Associate of Arts in Culinary Technology

Past Experience

Market watcher, trader and investor for numerous websites. Founded Passive Market Intelligence LLC to provide market research insights. 


Featured Articles and Offers

7 Stocks That May Be Next to Split Their Stock

7 Stocks That May Be Next to Split Their Stock

Expert insights into the psychological impact of stock splits and the potential candidates for future splits.

Search Headlines: