Welcome everyone. Thank you for joining in this video. I think you're going to enjoy it because I'm going to be revealing the secrets of how Bill Ackman pick stocks. Now, why do we look at how Bill Ackman pick stocks? Well, first of all, he's been on kind of a roll lately. He's picked out a lot of companies that have outperformed the market by huge extent for the past 45 years, he has Market beating returns and he's doing this pretty consistently. So I wanted to see how is he
picking stocks? When does he know? Tobias doc, when is he going to jump in? What is his process for doing this? Now we can look at him, try to explain it. But I don't think this gives a full picture. Here is Bill ackman's, view on how he pick stocks. This is the checklist that he talks about. That's a we look for very high quality businesses.
What we describe as simple predictable, free cash flow generative, dominant businesses, a business that Warren Buffett would describe as having a moat around it, right? If you, that's what he says, we look for these simple predictable. Cash flow generative, dominant businesses. That Warren Buffett would describe as having a moat around it. Now to me, that's a little bit of like, weird spaghetti.
He's just spitting out a bunch of investment Guru, talk, having a mo, having dominant businesses. It's free cash flow generative, right. Not much. That's actually substance. They're not much that we can filter by you can't type in with the screener. I want to dominate free cash flow generated business. That has a wide moat like Warren Buffett would want right? That's not something that we can put into a screener. So what is Bill?
Blackman, actually doing to pick a stock because what he says he's doing an interview, an interview format is a lot of Flowery language. That's really not that actionable. And what I want to do in this video is reverse-engineer how Bill Ackman. Looks at stocks how he picks them and how he knows when to buy them. So, by the end of this video, you'll know how Bill Ackman, both pick stocks, the criteria, he looks at and how he knows when to buy.
Mm, will answer both of those questions in this video. Now, the way, Have determined his stock-picking checklist is through something called reverse engineering, which simply means that I look at the outcome, the companies that he has and I use logic and deduction and reasoning and process of elimination to determine how he got to that outcome.
How? He gets these type of stocks in his portfolio and the reason behind it, let's go ahead and look for some commonalities in his portfolio will start off with lows. If we go to call term insights, this is a tool available to all patrons, we can type in the ticker symbol of lows and we can see it pop up here. The first thing that I know about Lowe's is this is his biggest position. It's 24 percent of its portfolio, so he's very heavy into lows and he's held this one
for a while. Lowe's has a good brand name so it has good brand value. It is a company that's widely known. It has a big market cap, so he's not looking for Niche. Unknown small market cap companies. The next thing that I look at is that it has growing revenues over time. Lowe's is a growing company that also has what's called secular growth, which means that it has a long Runway of growth. The type of things that loads does is not going out of style doing home projects, and Renovations.
That's going to be a secular growth trend for a very long time. Lowe's has positive and growing ibadah. This is a proxy for earnings Lowe's, has positive and growing free cash flow. Another proxy for earnings and then we have lows net income, which is also positive and growing. So we're just taking an Here. Bill Ackman invested in a company that has good brand. Value has growing revenues positive growing ibadah, free cash flow net income.
If we go over to the balance sheet, we can see that it does have debt. So we know that Bill Ackman is okay. Investing in a company that has a decent amount of debt, 24 billion dollars. So he doesn't just rule out a company because it has above zero debt, Louis has six point six billion dollars in cash so they do have more debt than cash. Another thing that we can look at is Lowe's has a growing
dividend. So, this is a dividend Here and it's been growing steadily over a long period of time. This is very fast dividend growth. On top of that, loes is also doing share Buybacks. In fact, this company is devouring. Their shares outstanding back in 2017 early 2017, they had eight hundred and sixty-six million shares their last quarter.
They had 686 million. So they are buying back hundreds of millions of shares over the past few years and the effect this has on the stock is When you reduce the amount of shares outstanding, it helps the earnings per share increase. So you can look at the earnings per share of this company. Not only, are they growing their net income but they're also reducing the shares outstanding, which both help increase the earnings per share, which you can see is definitely happening
with lows. So just to summarize his biggest position. Good brand value, Revenue, growth ibadah, that's positive free cash, flow. That's positive. Net income, that's positive. He has some debt hair so he doesn't mind. Debt on the balance sheet growing. And and lots of share BuyBacks and a trend of growing earnings per share. Now let's go ahead and move on. And look at his second biggest holding, which is Hilton. This is 18% of its portfolio just behind lows.
And keep in mind what we're looking for, here are commonalities, we're looking for common themes so we can deduce how he picks stocks, what type of factors he looks at we can type in Hilton here. Should bring it right up Hilton. The first thing that I know is that it has Brand value. People will pick sting in a Hilton over some random hotel that they don't have any experience with, but it's also a big company market cap of 40 billion.
The revenue has been growing over time prior to the pandemic. So my guess is he was looking for a growing company but the pandemic happened and that kind of threw the plan off a bit, but you can see that prior prior to covid prior to 2020. The revenues were growing over time. You can see the same thing with the ibadah. It had about a growth then the pandemic happen. So I give this one a little bit of a pass. The ibadah has recovered. The free cash flow.
We can see a very similar thing with the free cash flow. It was growing prior to covid, then that happened. Now, it's recovering. So we see the same Trend here between Hilton and lows, they have Revenue growth. You have even a growth free, cash flow growth, net income growth, they also both have debt. So both of them have on the balance sheet, they have less cash than debt. So he's okay.
Investing in companies with a lot of debt Hilton differs in that, it doesn't currently pay a dividend. It's the same though. And that it's doing. Share BuyBacks. Remember Lowe's is aggressively buying back. Their stock Hilton has been doing that over the past five years. Look at the share count, decreasing. We can also look at the earnings per share as Hilton buys back their own shares using free cash flow and their net income. The earnings per share will generally go up.
You can see that this was So, dampen though with covid, but again, it's recovering and it's going back up. So overall, I do see a lot of similarities here. Both companies have the revenue ibadah free cash flow, net income. Both of them are doing share BuyBacks. Both of them are growing their earnings per share. Let's go ahead and move on to the next one. And look for any commonalities. We'll look at Chipotle. We can type in CMD here for Chipotle. Chipotle is another big company.
Well, known so far. He has invested in, no unknown companies or small cap. Companies, all of these are very large. Well-known companies. Chipotle does have like the others growing revenue. And their revenue is growing very quickly. Chipotle also has positive and growing ibadah. They have positive and growing free cash flow. They have positive and growing net income. Check. Check. Check the exact same as Hilton the exact same as lows. They have no debt. So, so far, Bill.
Ackman is invested in companies that both have a lot of debt and ones that have no debt. Seems like, he doesn't concern himself too much with the DET as long as it's manageable, all of these companies have manageable debt and chipotle does have a billion dollars in cash on the balance sheet, they pay no dividend. So he doesn't have a requirement. That the company pays a dividend. They are. However, just like the previous two doing, share BuyBacks over
time. You can see the share count going down over the past five years. So I think that Bill Ackman likes companies that either pay a dividend or do share BuyBacks, or preferably both. But we can also look at the earnings per share, like the other companies. Generally speaking, this is going up and right now the earnings per share is going up quite fast. So again, all the similarities, their revenue growth, ibadah growth free, cash flow growth, net, income growth, and share BuyBacks.
Those are all similarities along with having the brand value of an established company. Moving on to the next one. We have restaurant Brands, International ticker, symbol Q Sr Q. Sr is another company. First of all, that's food. So, he seems to like the restaurants, but it's also a well, recognized brand. They have Brands like Burger That just like Chipotle everyone knows about everyone knows what they're getting and I do think they have substantial brand value.
But again, we look at the commonalities here and you can see them. The revenue is growing over time, the ibadah was growing prior to covid and that set them back a bit but it seems like it's recovering. And generally growing over time, the free cash flow likewise is growing over time. All of these are positive. The net income is pretty consistent as well. It did take a hit during the pandemic and it seems to be recovering. Covering.
So again all the companies he's invested in have growing revenues every company so far has positive, ibadah free cash flow, net income, and many of them have debt. One of them doesn't have debt. Q Sr has twelve point nine billion dollars in debt. So this is a company that has a lot of debt. No other way around it, he's okay. Investing in companies that have quite a bit of debt. This does however, pay a very good dividend, so they have a growing and substantial
dividend. In fact, if we look at the dividend yield, it's currently three. Point seven percent, so they don't have share BuyBacks. This one differs from the other notice, the only one so far. That's not actively doing, share BuyBacks, but it's paying a substantial dividend. So you might be looking at this and saying, well, they got to return money, one, way or the other through dividends or share BuyBacks.
It'd be good if they did both but he's probably looking at this one and seeing that they do a substantial dividend and then like all the others it's growing its earnings per share over time. So to summarize so far just has to keep a tally every company. So far is a big company, good brand value recognizable names, they have growing Revenue, positive ibadah, free cash flow, net income and growing earnings per share over time and so far, the majority of them are doing
share BuyBacks or dividends now. The next one is kind of a one-off which is Howard Hughes Corp. I'm not going to look at this one because it's a real estate play, which all the fundamentals are completely different and they have completely different leverage, ratios and stuff. So I'm going to skip this one and look at Domino's Pizza. It's the next big by that, he's done is portfolio. It makes up ten point nine, five percent of his portfolio.
I look at Domino's and see many of the exact same attributes dominoes of course has Brand value people, recognize the brand, they know what they're getting. When they buy dominoes and all the same things you would expect growing revenues every single company, so far has growing revenues positive ibadah free, cash flow and net income and all of them are growing over time. So far, every single company has those four things growing revenues? Positive ibadah free cash flow. Net income.
Domino's does have a lot of debt so this is very common among Bill Ackman Holdings. He's okay. Investing in companies that have a decent amount of debt. In fact, Domino's has five billion dollars of debt and only 148 million dollars in cash. It's a heavily indebted company and he's okay. With that. Domino's also has a substantially growing dividend
over time. This chart looks a little funny because of these two special dividends but if we go back to 2013, it had Twenty Cent dividend per quarter and now has a dollar and Ten Cent dividend per quarter so they've over 5x their dividend over like the past nine years that is substantial dividend growth. So a lot of the companies that we invest in also pay dividend they all every one of them have growing earnings per share over time.
That's something that every single company he's invested in so far has and the huge majority of them all of them. But one so far has a declining Share account. So I think he's looking for Knees that are devouring their shares outstanding. They're lowering the share count over time and Domino's is certainly one of the companies doing this. So again, if we're just keeping track, every company is a big company with good brand value growing Revenue Z but a free cash flow net income.
Some of them pay dividend, some of them don't, but most of them either pay a large dividend. Or they devour their shares outstanding by doing share BuyBacks. They do one of those two things. So, we're looking at all the commonalities here we can look at the next Which is Canadian Pacific Railway. This one's a little bit different than the others so we can type in CP to bring up this
one. If we look at Brand value, I don't know if brand value is the most important thing with the railway it might be. But I think that this is more of an industrial where it's going to be used whether or not it has Brand value or not. So that's something that might be similar. Let's go ahead and look at some of the fundamentals here. It has growing Revenue over time. You can see year-over-year it's
growing. It has positive ibadah A free cash flow positive, net income, all of those are growing over time. Bill Ackman. Certainly looks at those attributes because every single company without fail has had them. Their balance sheet, looks very similar. They also have quite a bit of debt, it looks like they recently took out more debt maybe to fund some acquisition but they currently have 21 billion dollars of debt and they currently have a very low amount of cash, 70 million dollars in
cash. So this company's okay being levered and Bill Ackman is obviously okay, with their current Balance sheet. If we look at the dividends much, like every other company they have a growing dividend over time. The only reason that it's lowered is because they did a stock split so otherwise the dividend would be going up the entire time. If we look at the earnings per share, just like every other company over the past five years.
Before this asset, that was sold their earnings per share is growing consistently and this is a brand-new holding for Bill, Ackman. And then the last thing that we can look at is the shares outstanding before the Sox split. You could see that they were also doing share BuyBacks. This is very consistent amongst every company in 2017. They had 146 million shares outstanding and they bought back all the way to 133. So they were doing some share BuyBacks as well.
So when I look over all these companies they all have similarities. The last one that I want to go into is one that seemingly very different but we know it's a new holding of bill ackman's which is Netflix. Now we're looking at Netflix here now your first assumption. Maybe that Netflix. Is kind of out of left field,
being a tech company. This streaming company, amidst, all these restaurants and, you know, these other companies investing in, but Netflix, I think is actually more similar to the rest of its Holdings and different. When you actually look at the business fundamentals, you realize how similar Netflix is? For example, Netflix is a big established company like every other one that he invest in has a high market cap, it's a brand that everyone knows. Everyone knows what Burger King is.
Everyone knows what Chipotle is. Knows what loza's and everyone knows what Netflix is. They all have strong brand value. None of these companies are unknown companies that nobody knows about Netflix. Also, just like the rest of them has growing revenues over time. It has growing ibadah over time, it's very consistently growing. Now Netflix is a little bit different in the way that they
amateur eyes. Their content cost makes it so that their ibadah is far different than their free cash flow in. This is where there is a Divergence so far every company he's Invested in has had positive history of free cash flow. Netflix is the only one to have - free cash flow in its history. But an important thing to keep in mind is investors like Bill. Ackman are investing for the future, not the past.
And Netflix has said this year, they will have positive free cash flow and they'll have it every year going forward. So as of right now, Netflix is transitioning and has transitioned to a free cash flow positive company. So, if you ask Bill Ackman about this, he probably Considers Netflix a company that will generate considerable amounts of free cash flow in the future and net income is obviously positive as well. It's growing over time as well.
So again if you actually compare Netflix in the qualities they look very similar to every other holding in his portfolio big-name, good brand value growing revenues, growing ibadah, free cash flow positive now going forward positive, net income. It does have debt like many of his other companies. He's okay. Investing in companies that have debt. It's declining. Over time as they're not funding their business through debt anymore. They have cash on hand of 6.03 billion.
They don't pay a dividend that's not a requirement. They have positive earnings per share growth. This is beyond just a positive EPS Trend. It's kind of an explosion of of earnings growth over the past couple of years. And then the last thing is that Netflix is a company that again is different from the rest of them in that it has a history of share dilution not share BuyBacks Bill, Ackman very much prefer.
Companies that are doing, share, BuyBacks and dividends and so far Netflix pays no dividend and it looks like the company's diluting shareholders, but keep in mind. Again, Netflix is now free cash flow positive. This chart starting this year is going to start declining. They will start doing share BuyBacks. The management team has already said that. So if you're buying a Netflix right now, like Bill Ackman is you are buying a company that will be doing share BuyBacks.
So when I look over all these companies, I see a lot of the same commonalities. I use deductive reasoning to try to figure out how Bill Ackman pick stocks. We can even look at recent Holdings, for instance, Starbucks. This is one that you just recently sold to by Domino's Pizza, but it has very much similar characteristics. Great brand value, big company. That's well established growing revenues ibadah free cash flow. Net income has some debt on hand has less cash very similar to
every other company. Pays a growing dividend is doing lots of share BuyBacks, and it's growing, its earnings per share over. Time, check, check, check, check. Check. Everything is the exact same as all the other companies that he holds. So, when I look over this and I try to use deductive reasoning and reverse engineering to finalize a checklist of what Bill Ackman looks at. This is what I come up with, and I hope you appreciate me putting
this together. Took a little bit of time, but I think this really does summarize it. So let's go ahead and go through it. Every company that he buys has significant brand value. They are not unknown companies, every single one, you name them, they have brand value brand value means that they have customer loyalty, customer trust. They have flexibility with pricing power and a bunch of
other positive attributes. Every one of them is in secular growth, all the companies had growing revenues, not a single one, had declining revenues. You can look at the hotel business, but that declining revenue is not because a secular decline because of a one-time incident. So, every single company that he buys is in an industry that has secular growth every single company that he buys has pricing power. Without fail, all of them, Netflix has it, they're raising prices.
It might make people upset Starbuck. Raising prices, Domino's Pizza, just raise prices, you know, every single company that he buys has pricing power. Pricing power. Simply put means that the company has the power to raise prices without losing their customers to competitors. That's pricing power, all the companies he buys has it Revenue growth, every single company had Revenue growth positive, free cash, flow ibadah and net income. Every single company has it.
The only arguable one is Netflix, but they're on the cusp of becoming Free cash flow positive and if their projections are correct, they'll have it this year. So all these characteristics of having positive free cash flow ibadah, net income, make it so that these companies often fund a growing dividend and if they don't fund a growing dividend, they fund share BuyBacks which are two different ways of returning Capital to the shareholder dividend.
Payments, of course are just cold Hard Cash. You can use it to compound your gains by reinvesting and share BuyBacks are eliminating a lot of the shares outstanding. It eliminates the total Vote. And so that your share price tends to go up, it has a positive effect on the earnings per share. And every company, he invests in has positive EPS growth, all of them have trending long-term positive EPS. So this is the checklist of
every single company. He invests in every single one that I can find and you can try to correct me if you're wrong. But I've looked at all of them, I've done extensive research on this and every single one of them have these type of attributes. These are great companies. If you find a company that has these attributes, it's going to have a significant mode. It's going to be a very dominant
company. The big question that comes next is while it's great to have brand value and secular growth and pricing power. The big question is when to buy these companies when you can actually get them for a good
deal. Because not only does Bill Ackman by these companies, but he buys them at very opportune times, that leads to excess gains Market beating gains and this is also something that I've researched and tried to figure out what the reverse engineering, how he initiates Despised and I noticed, another commonality every time he enters into a new position on a company every single time the PE Ratio or the price to sales or whatever, valuation metric.
You look at is typically trading below its historical average or at all-time lows, he buys the companies during significant dips. He buys them when they're trading at valuations below their historical norm and we can look at different examples of this. For instance, when he bought Starbucks, Starbucks is trading at like a 23. A PE ratio that was very low compared to its historical Norm. He held Starbucks and tell it traded up to a twenty seven. Twenty eight PE ratio, then he
sold the company. So by doing that Bill Ackman gets two types of returns two different ways that he increases his gains, one of them is by the natural growth of the company. This company is going to grow naturally over time, just by compounding, and growing and opening up new locations and growing their earnings. So that's one way that you get
Returns the other way. Through multiple expansion, if you can buy this company, when it's trading at a 23 P/E ratio and wait for the market to trade, it up to a twenty eight PE ratio, you get the multiple expansion. So, not only does Bill Ackman, get the multiple expansion. He also gets the natural growth of the company, both of those things, combined lead to Market beating returns.
So he buys companies, when there is significant dips trading below, their historical Norm, another example, we can look at more recently is Netflix Netflix Is trading at A 5.6 price to sales 5.6. Look up the historical average of the price to sales at Netflix trades at it's around 10 fact, sometimes it gets up to like 12 price to sales. Now it's trading at a five point six so Bill Ackman waited.
Until this company traded down 50%, the valuation got crushed and the price to sales plummeted, he bought a company that has all of these characteristics at a time where it was trading, well below its historical. Average. So just to summarize how Bill Ackman invest. He buys companies with significant brand value there in secular growth, they have pricing power. Every single one of them, they always have Revenue growth. They always have positive free cash, flow ibadah and net income.
They either pay a big dividend or they do share Buybacks. In some cases, they do both. He really likes companies that do aggressive share BuyBacks every single company. He invests in has earnings per share growth and he buys these companies at opportune times where their valuation trades, well below its historical Norm, he waits for the multiples to expand, and he gets both the returns of the multiple expansion and the returns of the natural growth of the company as
well. And then he sells and locks and gains, and he looks for other opportunities. According, to my research, my reverse engineering, that is specifically how Bill Ackman invest. And I think that this is something that more investors could do, more investors could look at this checklist and follow the exact same thing and probably have very good returns. So that's my thoughts on this subject. Hope this video was a little bit insightful.
At least fun to look at. Let me know if you like this type of thing and I'll do more of them in the future. Other than that, I'll see you in the next one.