Best undervalued Bill Ackman stocks for 2023

Bill Ackman, the billionaire investor, has had a stellar performance in Wall Street over the years. Between January 2004 and August last year, his fund had a compound annual return of about 15.5% compared to S&P’s 15.5%. In the UK, the closed-end Pershing Square (LON: PSH) share price has jumped by ~30% from its lowest point in 2022 and is sitting near its all-time high of 3,130p. Here are the best undervalued Bill Ackman stocks of 2023.

Howard Hughes Corporation

Howard Hughes Corporation (NYSE: HHC) is a real estate company that owns 118k acres of land, 9 million sqft of office and retail, and other assets. It mostly owns large master-planned communities (MPC) in key regions like Las Vegas and Houston.

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Howard Hughes stock price crashed to $51.12 in 2022 as the Federal Reserve delivered numerous interest rate hikes. These hikes pushed mortgage rates to their highest level since 2007 and pushed homebuilder sentiment to a decade low. 

Recently, however, the company’s stock has woken up and risen by ~72% from its lowest point in 2022. Technically, it has already cleared the 61.8% Fibonacci Retracement level as mortgage rates have retreated. It also formed a golden cross pattern

Still, Howard Hughes is relatively undervalued. For one, the company has some of the best quality assets that have the potential for more demand. Further, its debt is also highly insulated from high-interest rates, with ~83% of debt being fixed or swapped at a fixed rate. Also, from a trend-following perspective, the stock has a bullish momentum that could push it to March 2022 high of $107, ~21% above the current level.

Canadian Pacific Railway

American railroads are some of the most profitable in the world. According to the American Journal of Transportation, railroads are the most profitable industry with a profit margin of about 50%. It is easy to see why. 

Companies like BNSF and Canadian Pacific (NYSE: CP) have low fixed and variable costs and their business is inflation-protected. Canadian Pacific usually passes some costs, especially fuel, to customers through its fuel surcharges and CPI escalators.

Canadian Pacific has another catalyst. The company could receive is go-ahead to merge with Kansas City Southern (KCS) as soon as this quarter. Such a merger will increase the company’s scale and bring in much-needed synergies. Most importantly, the company will have an upper hand in negotiations since it will be the only one with a direct route from Canada to Mexico. 

To be clear. Canadian Pacific is not extremely undervalued. It has a forward EV/EBITDA ratio of 19.35, higher than other railroad companies like CSX, Norfork Southern, and Union Pacific. 

Hilton Worldwide

Hilton (NYSE: HLT) is a leading company in the hospitality industry present in 123 countries. It operates through its eponymous brand and 18 others, including Waldorf Astoria, LXR, Conrad, Canopy, Curio, and DoubleTree, among others.

Hilton stock price has made a steady recovery, rising by ~36% from its lowest level in 2023. It has more room to grow as global travel rebounds. The most important catalyst will be the rebound of business travel. Studies have estimated that this sub-sector will recover fully this year. This will benefit Hilton, which is inclined towards business travelers than leisure. In a statement, Ackman made the bullish case for Hilton, saying:

 “Is industry-leading competitive position, superb management team, attractive long-term net unit growth algorithm, pricing power, and best-in-class capital return policy.”

Bill Ackman also has exposure to several other undervalued companies. The most undervalued of them all is Pershing Square Holdings, which has about a ~30% discount to net asset value (NAV).