In a recent column on billionaire activist investor Carl Icahn, I detailed that tracking the moves of a high profile investment manager can be an extremely valuable strategy for individual investors. At the end of the day, coming to your own conclusion on whether an investment makes sense is most important, but there is certainly nothing wrong with leaning on other astute money masters in getting to your own buy, hold, or sell decision.

I just spent some time getting more familiar with William Ackman, who is another activist investor that, like Icahn, has become a billionaire by managing a number of hedge funds. Ackman’s investment vehicle is Pershing Square Capital Management. His results so far are nothing short of impressive, returning more than +480% since inception in January of 2004.

Pershing Square is a traditional hedge fund in that it charges a hefty performance fee, but even after subtracting that out, along with a standard management fee, his funds are still up nearly +293% — 16 times greater than what the S&P 500 has done in this period and handily outperforming all primary market indexes (Ackman lists the S&P500, NASDAQ, Russell 1000, and Dow Jones Industrial average as performance “bogeys” in his investor letters).

To briefly summarize Ackman’s primary investment approach, it is generally what you would expect from a successful manager. He takes a concentrated approach to investing, as he has the confidence to select a very small handful of companies that have a high probability of beating the market and garnering high total returns for his investors. This approach is also needed as an activist investor, given the need to talk directly to and in many cases confront company management teams. Too many investments would make this activist-bias extremely difficult.

Ackman’s willingness to bet big on a few names he believes in mirrors that of legendary investor Warren Buffett earlier in his career. [Read: What Buffett Says About Diversification Will Shock You ] A focus on free cash flow, or operating cash flow minus capital expenditures, and companies that are trading well below intrinsic value are also similar to Buffett and value investors in general. (“Intrinsic value” is basically the value of a company if its future cash flow could be known with certainty.)

With that, here is an overview of some of his most recent investments and a summary of his opinions on the stocks…

J.C. Penney (NYSE: JCP)
J.C. Penney is one of Ackman’s more recent investments. He recently disclosed he owned nearly 17% of J.C. Penney’s shares and likes the name, given “its inexpensive valuation, strong brand name and assets, and well-deserved reputation for overseas sourcing, high quality systems, and large in-house brands.” This is clearly a turnaround play: J.C. Penney has lagged key rivals, including Kohl’s (NYSE: KSS) and even big-box retailers such as Target (NYSE: TGT), which Ackman also happens to hold. He sees a coming recovery as the economy improves and will undoubtedly agitate for change to make Penney’s more competitive with its peers.

Fortune Brands (NYSE: FO)
Another recent investment is Fortune Brands, a conglomerate that operates in the housing materials, alcoholic spirits, and golf industries. Ackman met with the company on November 4 and has been rumored to suggest a breakup of the company to enhance shareholder value. This makes sense as the housing and golf segments have really struggled. Demand for things like faucets, windows and doors have plummeted because of the housing bubble, and golfing continues to lose popularity as a hobby for younger people. The spirits business is the crown jewel of Fortune Brands, and Ackman believes that “there is substantially greater value that can be realized” in the stock, even though it has rallied strongly since Ackman’s interest became public.

Ackman was unsuccessful in convincing Target to spin the real estate its stores are on into a separate company to increase shareholder value, but he still holds a sizable position, betting on  improving sales after the financial crisis and a huge drop in consumer spending. He also sees a number of company initiatives, including the rollout of grocery items and a customer loyalty credit card that offers -5% discounts as pushing along total sales and profit growth going forward.      
   
Other investments of note include Citigroup (NYSE: C), ADP (NYSE: ADP), Corrections Corp of America (NYSE: CXW) and Kraft (NYSE: KFT). [Read why my colleague David Sterman thinks Kraft is a great bet heading into next year ] General Growth Properties (NYSE: GGP) and Howard Hughes Corporation (NYSE: HHC) represent two other recent plays where Ackman has increased his ownership stake significantly.

Action to Take —> Finding a company that is undervalued in the market is a cornerstone of Ackman’s strategy. And as evidenced by Ackman’s investments, you don’t need to discover smaller or under-followed companies to earn big returns.

Of Ackman’s holdings, I particularly like Target, Kraft and Howard Hughes Corporation and have targeted the names for further research. Ackman is particularly bullish on J.C. Penney and Fortune Brands, which also makes them worth investigating further.