Bill Ackman has a substantial fortune, partly thanks to his stock-picking prowess. In this article, we're going to look at some characteristics that could help identify some great ASX shares.
Forbes suggests that Bill Ackman's net worth is more than US$3 billion. He is the figurehead at Pershing Square Capital Management.
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Bill Ackman's investment commandments
As reported by my US Fool colleague Keith Speights, Ackman was recently on the Julia La Roche Show podcast. He reportedly held up his commandments, which are supposedly engraved on stone tablets and sit on the Pershing Square's team's desks.
There are eight characteristics that Ackman pointed to, which could help us choose the best (ASX) shares:
- The business must be simple and predictable
- It must generate free cash flow
- The company must have a dominant market position
- There must be large barriers to entry for rivals (meaning the business should have a moat)
- The company must generate a high return on capital
- The business must have limited exposure to uncontrollable extrinsic risks
- The company must have a strong balance sheet without needing access to capital to survive
- It must have excellent management and good governance
The idea is that he's looking for the best businesses in the world, at attractive prices.
So, which ASX shares could tick those boxes? There aren't many on the ASX, the S&P/ASX 200 Index (ASX: XJO) is largely dominated by ASX mining shares and ASX bank shares, which I don't think tick all the boxes. Plenty of the ASX tech shares on the ASX aren't sizeable, or making much (or any) profit yet.
I'll briefly talk about three ASX shares that seem to match the description. I wouldn't say they're trading at prices as attractive as 2022.
Altium Limited (ASX: ALU)
Altium is a provider of software relating to the design of electronic PCBs. It has a number of different software offerings including Altium Designer, cloud platform Altium 365 and electronic parts search engine Octopart. It's an integral business, with numerous important clients that are designing the future, such as Space X, NASA, Microsoft, Apple, Alphabet and Tesla.
In FY23, the business made free cash flow of US$52 million and finished the financial year with US$201 million of cash.
TechnologyOne Ltd (ASX: TNE)
TechnologyOne provides a global software as a service (SaaS) enterprise resource planning (ERP) solution that is issued by over 1,300 corporations, government agencies, local councils and universities. They all need software to operate.
It hasn't reported its FY23 result yet – it had a strong year in FY22 – free cash flow increased 41% to $71.9 million. At the end of the FY23 half-year result, it finished with $139 million of cash and cash equivalents.
REA Group Limited (ASX: REA)
REA Group is an ASX tech share that owns a variety of property websites in Australia, such as realestate.com.au. It also has stakes in property sites in the US and Asia. A high proportion of the properties that are sold in Australia are advertised through REA Group. The business said that in FY23 it saw 2.7 million average daily visitors, 3.6 times more visits than the nearest competitor each month on average.
Despite the 12% decline in national listings in Australia in FY23, including an 18% reduction of listings in Sydney and a 15% reduction in Melbourne, REA Group's net profit only fell by 9%. In FY23, the business made free cash flow of $357 million and only had net debt of $59 million at the end of the 2023 financial year, with a cash balance of $260 million.
