While cyclical stocks received immense investor attention earlier this year amid the fast-paced economic recovery, the rapid spread of the hyper-contagious COVID-19 Delta variant in recent weeks has made investors anxious about the pace of economic recovery. According to CDC Director Dr. Rochelle Walensky, “The Delta variant now accounts for 83% of all sequenced Covid cases in the U.S.” Nevertheless, billionaire investor Bill Ackman said earlier this week that he expects a massive economic boom despite the delta variant.
The activist investor, who owns and manages Pershing Square Capital Management L.P., is known for his success with investments in The Wendy's Company (WEN), and Canadian Pacific Railway Limited (CP), among others. Pershing Square Holdings, Ltd., the closed-ended balanced hedge fund managed by Pershing Square Capital Management, has returned 24.7% over the past nine months.
With Bill Ackman betting big on the rebound in restaurants and retail, among other sectors, we think it could be wise to scoop up the shares of Lowe's Companies, Inc. (LOW), Chipotle Mexican Grill, Inc. (CMG), and Restaurant Brands International Inc. (QSR). They are among his hedge fund’s top holdings.
Lowe's Companies, Inc. (LOW)
One of the largest home improvement retailers globally, Mooresville, N.C.-based LOW offers a range of products for maintenance, repair, remodeling, and decorating. The company provides home improvement products in various categories, such as appliances, hardware, flooring, and tools. It is the top holding in Bill Ackman’s portfolio, representing 21.49% of the portfolio.
LOW has declared an $0.80 per share quarterly dividend payable on August 4, 2021, representing a 33.3% increase from its previous $0.60 per share dividend. The company, which has consistently paid a cash dividend every quarter since going public in 1961, has increased the dividend for more than 25 consecutive years.
For its first fiscal first quarter, ended April 30, 2021, LOW’s net sales were $24.42 billion, representing a 24.1% year-over-year rise. The company’s comparable sales for the U.S. home improvement business increased 24.4% year-over-year. Its operating income increased 63% year-over-year to $3.25 billion, while its net income increased 73.6% year-over-year to $2.32 billion. Its EPS increased 82.4% from the same period last year to $3.21.
Analysts expect LOW’s revenue to increase 2.1% year-over-year to $91.44 billion in its fiscal year 2022. The company’s EPS is expected to grow 13.6% year-over-year to $2.25 for the quarter ending October 31, 2021. It surpassed the Street’s EPS estimates in three of the trailing four quarters. The stock has gained 22.6% year-to-date to close yesterday’s trading session at $196.77.
LOW’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
The stock has an A grade for Momentum, and a B grade for Sentiment and Quality. We’ve also graded LOW for Growth, Value, and Stability. Click here to access all LOW’s ratings. LOW is ranked #22 of 63 stocks in the A-rated Home Improvement & Goods industry.
Chipotle Mexican Grill, Inc. (CMG)
Together with its subsidiaries, CMG operates Chipotle Mexican Grill restaurants. The Denver, Colo.-based company’s restaurants serve a menu of burritos, tacos, burrito bowls, and salads. The stock constitutes 14.58% of Ackman’s hedge fund portfolio.
To celebrate American athletes competing in Tokyo, CMG introduced gold foil-wrapped burritos for a limited time at participating locations and through digital orders beginning today and running through August 1. In addition, the company announced that there would be no delivery charge during this period. So, this could lead to increased sales for the company.
CMG’s total revenue surged 38.7% year-over-year to $1.89 billion for the second quarter ended June 30, 2021, driven by strength in digital sales, the strong recovery of in-restaurant sales, and positive customer reception to its new menu items. Its digital sales grew 10.5% year over year to $916.5 million. Its non-GAAP net income came in at $212.75 million, up 1,758.4% year-over-year. CMG’s non-GAAP EPS increased 1,765% year-over-year to $7.46.
The company’s revenue and EPS are expected to increase 23.3% and 128.4%, respectively, year-over-year to $7.38 billion and $24.51 in its fiscal year 2021. In addition, CMG surpassed the consensus EPS estimates in three of the trailing four quarters. The stock has rallied 24.2% over the past month to close yesterday’s trading session at $1,798.40.
CMG’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to Buy in our proprietary ratings system. In addition, the stock has an A grade for Growth, and a B grade for Momentum and Quality.
In addition to the POWR Ratings grades I’ve just highlighted, one can see CMG’s ratings for Value, Stability, and Sentiment here. CMG is ranked #23 of 46 stocks in the A-rated Restaurants industry.
Restaurant Brands International Inc. (QSR)
Headquartered in Toronto, Canada, QSR is one of the world’s largest quick-service restaurant companies, with approximately 27,000 restaurants in more than 100 countries and U.S. territories. It owns three quick-service restaurant brands: Burger King, Tim Hortons, and Popeyes. The stock accounts for 14.69% of Bill Ackman’s portfolio.
On April 26, 2021, QSR’s Popeyes and Gulf First Fast Food Company announced a plan to develop and grow the Popeyes brand in the Kingdom of Saudi Arabia. QSR’s International President, David Shear, said, “We are thrilled to announce the development agreement with Gulf First to increase the pace of growth for the Popeyes brand in the Kingdom of Saudi Arabia, as part of our broader global expansion strategy.”
The company is expected to release its second-quarter earnings results on July 30. QSR’s total revenue increased 2.9% year-over-year to $1.26 billion for the first quarter ended March 31, 2021. Its franchise and property revenues, which constituted 43.5% of its total revenue, increased 4.4% year-over-year to $548 million in the quarter. Its non-GAAP net income came in at $257 million, representing a 13.2% year-over-year rise. Its non-GAAP EPS was $0.55 compared to $0.48 in the prior-year period.
For the about-to-be-reported quarter ended June 30, 2021, analysts expect QSR’s revenue and EPS to increase 30.4% and 86.6%, respectively, year-over-year to $1.37 billion and 0.62. It surpassed the Street’s EPS estimates in three of the trailing four quarters. The stock has soared 13.7% over the past nine months to close yesterday’s trading session at $64.91.
It’s no surprise that QSR has an overall B rating, which equates to Buy in our POWR Ratings system. In addition, the stock has a B grade for Stability, Momentum, and Quality. Click here to see the additional POWR Ratings for QSR (Growth, Value, and Sentiment).
QSR is ranked #22 in the Restaurants industry.
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LOW shares were trading at $200.76 per share on Friday afternoon, up $3.99 (+2.03%). Year-to-date, LOW has gained 26.41%, versus a 18.35% rise in the benchmark S&P 500 index during the same period.
About the Author: Manisha Chatterjee
Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst.
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