Pershing Square's Ackman bets on ADP, McDonald's

* Ackman sees ADP earnings accelerating as economy improves

* ADP added to holdings in second quarter

* Also has gotten back into McDonald's stock

BOSTON, Sept 22 (Reuters) - Hedge fund manager William Ackman has told his clients he sees Automatic Data Processing Inc's (ADP.O) earnings accelerating as the economy picks up.

Ackman's Pershing Square Capital Management, which invests in only a handful of companies, added the payroll servicing company to its small portfolio of stocks when it bought a 7.3 percent stake in ADP in the second quarter, betting that as employers start hiring again, ADP's business will revive.

Ackman also said he has gotten back into McDonald's Corp (MCD.N). Retailer Target Corp (TGT.N) and data storage company EMC Corp (EMC.N) are also big holdings of Pershing Square.

Ackman told investors in a letter on Friday why he expects the ADP bet to pay off. "As the economy stabilizes, we believe the headwinds facing ADP will become tailwinds. Given the operating leverage inherent in ADP's business model, ADP's earnings should accelerate as it approaches its normalized earnings potential," he wrote.

While Roseland, New Jersey-based ADP's stock price has fallen 12.17 percent in the last 52 weeks, it has gained 9.84 percent in the last three months amid signs the battered economy is stabilizing.

Ackman said ADP boasts one of the few truly Triple-A balance sheets in the world. It generates cash in excess of reported earnings given its low capital outlays, and its dominant industry position leads to significant pricing power, he said.

New York-based Pershing Square and Ackman are familiar with the payroll servicing business as they were, for a time, the largest shareholders in Ceridian Corp in 2007.

Ackman is also familiar with McDonald's, a stock he purchased in mid-2005 and then sold at a large profit for $56 a share in late 2007.

He praised the fast food chain, whose stock is now trading at $55.83, for having made "material financial progress" by increasing after-tax earnings, cutting common shares outstanding and increasing its dividend by 33 percent.

The fund manager has earned hundreds of millions of dollars by betting on fast food chains like Wendy's WEN.N.

In the first six months of 2009 Ackman's flagship Pershing Square, L.P. fund has returned 11.3 percent. (Reporting by Svea Herbst-Bayliss; Editing by Gary Hill)