Finimize - ♠️ Bill Ackman showed his cards

What’s going on here?

Pershing Square – the hedge fund founded by famed investor Bill Ackman – shared an update with investors this week, mapping out a handful of market opportunities and oddities.

What does this mean?

Pershing’s ideas deserve your attention: the firm has a stellar track record and its founder is revered as a successful contrarian. This time, it pointed to the current “concentration” in the S&P 500 – a key US stock index – where the ten biggest companies account for almost 40% of its market capitalization. Together, just those ten firms were responsible for nearly 60% of the index’s returns last year. In fact, rallies pushed their combined average valuation (measured by price-to-earnings ratios) to 27 – far pricier than the other 490 companies’ score of 20.

Why should I care?

For you personally: How to follow Pershing Square’s bets.

The S&P 500’s concentration means it’s not the diversified bet it once was, and that creates a risk for investors. But betting on an equal-weighted S&P 500 index fund – which gives the same allocation to each of the 500 companies – could help balance that out. And lower interest rates should spur on the less buzzy firms to boot.

Luckily for investors, Pershing put some of its own picks on display. The firm’s backing Uber and Nike, betting that new management will restore the Jordan-maker to its former glory. Pershing also sees Alphabet as an underappreciated AI play – one that could parlay its super-smart tech into search and cloud computing more profitably than people expect. Otherwise, the firm’s stock – which looks cheap – might stay that way, given its uncertain earnings and cash flow outlook. Pershing had a hankering for Chipotle, too, expecting an increase in the restaurant chain’s earnings with new stores opening left and right – plus, under the tortilla, Chipotle just might be an AI play in disguise.

What’s going on here?

Investors gobbled up results from Nestlé, the world’s biggest listed food company, on Thursday – and spat out the earnings that rival Unilever served up.

What does this mean?

Investors pushed Nestlé's stock up 6%, impressed by higher-than-predicted profit and a bigger uptick in “organic” sales – which exclude the impact of currency swings and acquisitions – last year than analysts expected. The KitKat maker’s promise that sales would pick up even faster this year probably helped convince them, too.

Unilever’s update had the opposite effect. Now, the maker of Ben & Jerry’s ice cream did report annual revenue and profit that was slightly better than expected. But it put the kibosh on hopes of a Nestlé-style sales increase this year, with predictions that fell short of more optimistic forecasts. Unsatisfied, investors sent the stock south by 7%.

Why should I care?

For you personally: You’re paying Nestlé prices.

Nestlé and Unilever sell products to Walmart, Tesco, and the like – who then sell them to you. So you’ll be glad to hear that both firms have been slowing their price increases. Nestlé hiked prices by 1.5% last year (versus 7.5% in 2023), and Unilever lifted its own by just 1%. That suggests inflationary pressures are easing. And while the prices of your favorites might not be getting cheaper, they should at least stop becoming more expensive as quickly.

The bigger picture: The industry’s on a health kick.

Consumer staples companies bring in slow and steady sales by selling relatively low-ticket products that folk can’t go without. They’re usually lauded for predictability, but activist investors have long urged them to pick up the pace. To do that, activists encourage these companies to sell off lagging parts, so the business – while smaller – can grow more quickly. Looks like Unilever’s taking heed: the firm’s scooping out its ice cream division to list as a separate business – not least because health-focused trends are threatening to overhaul the freezer aisle.