Some investors might see the S&P 500 (^GSPC +1.20%) sitting at an all-time high and think there’s not a lot of value to be found right now. Bill Ackman is looking at it and asking investors to give him $10 billion to deploy in some of the best opportunities he sees.
The hedge fund manager is preparing for the initial public offering of a new closed-end fund, Pershing Square U.S. The fund will trade publicly starting this summer after a dual listing with Pershing Square, the fund management company Ackman runs, which currently oversees about $20 billion in assets.
Ackman says he plans to deploy the cash raised from the IPO within a matter of weeks, and he thinks right now is quite a good time to invest.
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There’s value in this market hiding in plain sight
“Some of the best businesses in the world have become available at some of the lowest valuations in their history,” Ackman said in a recent interview. The statement echoes comments from his most recent letter to Pershing Square Holdings shareholders.
While many look at the current valuation of the S&P 500 and think it’s overpriced, Ackman still sees tremendous value. The S&P 500 recently traded at a forward P/E ratio of 20.4, well above its historic average in the mid- to high teens. That high P/E is largely due to the concentration in the index among just a handful of companies that typically carry higher-than-average P/E ratios.
Ackman points out that these companies are well deserving of higher valuations, as they benefit from “durable structural advantages,” or what Warren Buffett might call competitive moats. These megacap stocks all benefit from massive scale, dominate their respective industries, and have ample capital to invest in megatrends such as artificial intelligence (AI). As a result, they’ve been able to grow their earnings relatively quickly and should continue doing so for years to come.
Ackman recently added shares of Meta Platforms (META +1.81%) to Pershing Square’s portfolio following a sell-off in shares related to concerns around its capital expenditure budget. He added to Amazon (AMZN +0.26%) when investors reacted similarly to its $200 billion spending plans.
Today’s Change
(1.81%) $12.27
Current Price
$689.14
Key Data Points
Market Cap
$1.7T
Day’s Range
$675.14 – $691.52
52wk Range
$479.80 – $796.25
Volume
1.2M
Avg Vol
16M
Gross Margin
82.00%
Dividend Yield
0.30%
Both stocks are trading at relatively low P/E ratios, especially considering the growth potential for the companies. Amazon has made a strong recovery from its March lows, when it traded for a P/E of just 26. It now trades for 32 times earnings, which remains a fair value. Meta’s earnings multiple still trades for an attractive 22 times earnings. Both companies are capable of growing their earnings per share more than 20% per year for the medium term.
Those are just two examples of how Ackman pays up for quality stocks with excellent growth opportunities. Stocks don’t have to trade at low…
Read More: Billionaire Bill Ackman Is Planning to Invest $10 Billion in New Stocks
