Pershing Square Navigates Volatility: How Strategic Bets on Undervalued Assets Are Driving Q1 Outperformance

In a market roiled by geopolitical tensions and shifting trade policies, Pershing Square Holdings Ltd (PSH) has emerged as a beacon of resilience. The firm's first-quarter 2025 results, highlighted in its recent investor call, reveal an 800–1,000 basis-point outperformance against the S&P 500—a testament to its ability to identify undervalued opportunities while mitigating risks. At the heart of this success are three strategic pillars: Howard Hughes Corporation's real estate transformation, Amazon's discounted valuation, and sector diversification to sidestep tariff headwinds.

The Howard Hughes Play: Building “Small Cities” for Long-Term Growth

Pershing Square's $900 million stake in Howard Hughes Corporation—securing a 47% ownership position—represents its boldest bet. The firm aims to transform Howard Hughes into a diversified holding company, akin to Berkshire Hathaway, by leveraging its real estate assets to create “small cities” focused on mixed-use developments. This strategy includes:
- Developing an insurance operation to reduce the cost of capital.
- Acquiring high-quality private or public businesses to diversify revenue streams.

The move is underpinned by Howard Hughes' portfolio of prime locations, including the Columbia Business Park in South Florida and the Woodmont Hills project in Maryland.

Amazon: A Discounted Titan with Dual Growth Engines

Pershing Square seized the opportunity to buy Amazon at a “historically low valuation,” capitalizing on market volatility. The firm highlighted Amazon's dual business model—AWS (cloud computing) and the retail division—as a source of sustained growth. With AWS dominating enterprise tech spending and retail benefiting from e-commerce resilience, Amazon's $1.5 trillion market cap appears undervalued relative to its long-term potential.

Navigating Tariffs with Strategic Diversification

Pershing Square's portfolio is intentionally insulated from trade-related risks. Over 80% of its capital is allocated to businesses unaffected by tariffs, such as Howard Hughes (domestic real estate) and Amazon (cloud services). Meanwhile, the firm has trimmed exposure to tariff-sensitive sectors like transportation (Canadian Pacific Railway) and selectively hedged risks for companies like Nike, which sources 100% of its merchandise from Southeast Asia.

Addressing Near-Term Challenges: Chipotle, Nike, and the Path Forward

While Pershing Square's long-term vision is clear, near-term hurdles remain:
- Chipotle: Struggled with severe weather disruptions and rising input costs.
- Nike: Faces tariff-related supply chain risks and moderating demand in legacy markets.

Yet, the firm remains confident in their cash-generative capabilities and market leadership. As Ryan Israel noted, “These companies are priced for perfection, not progress. We're investing in their ability to adapt, not their short-term metrics.”

The Team's Proactive Edge: Why This Outperformance Matters

Pershing Square's outperformance isn't accidental. The team's proactive portfolio management—trimming five positions, exiting one, and adding three new stakes—reflects a disciplined focus on value. The S&P's recent ‘A-‘ credit rating upgrade underscores the firm's financial stability, while its governance structure (e.g., $15 million annual fees rebated to investors for Howard Hughes oversight) ensures alignment with shareholders.

Why Act Now?

The market is pricing in uncertainty, but Pershing Square's strategy is betting on resolution. With geopolitical tensions expected to ease by year-end and the Federal Reserve poised to cut rates, the stage is set for a rebound in growth stocks. By focusing on tariff-proof businesses, undervalued tech giants, and real estate engines of urban renewal, PSH offers a rare blend of safety and upside.

Conclusion: A Blueprint for Volatile Markets

In an era of uncertainty, Pershing Square's Q1 results prove that proactive portfolio design and valuation discipline can outperform even the most turbulent markets. With Howard Hughes' urban development ambitions, Amazon's unmatched scale, and a portfolio engineered to sidestep trade risks, this is a rare opportunity to invest in both defensive resilience and transformative growth.

The question isn't whether to act—it's whether to act now, before these opportunities become fully priced.