Carl Icahn bets the pot with 78% of his entire portfolio in just two stocks.
Billionaire investor Carl Icahn has a four-decade-long reputation as a hard-nosed corporate raider in the 1980s.
In the 1980s, he was involved in hostile takeovers of companies using leverage buyouts (LBOs) and then stripping the businesses of their valuable assets.
Carl Icahn views himself as an activist investor, typically a hedge fund that buys a significant majority stake in a publicly traded company intending to change how the directors manage the company.
But to his critics, Carl Icahn is more of a predatorial asset stripper, an investor who buys the company below market value and then sells off the company assets, intending to make profits by gaining more from the asset sale than the amount paid for the entire company.
“Billionaire investor Carl Icahn has a four-decade-long reputation as a hard-nosed corporate raider in the 1980s.”
WEALTH TRAINING COMPANY
An asset stripper is similar to a butcher who buys the carcass of the animal and then carves it up in smaller pieces for sale for profit.
The fundamental difference between the two investor types is that, unlike the asset stripper, the activist cares about the Company’s future.
White knights, friendly individuals, or firms rallied by the target company as a defence against a hostile takeover are another source of profits for the asset stripper.
With profit motive being the ultimate goal of asset strippers, white knights often pay substantially more than it is worth, persuading shareholders, including asset strippers, to sell their holdings to white knights, thereby saving the company from being butchered.
A sizable portion of Carl Icahn’s fortune came from other investors paying him substantial sums of money in the hope he would abandon his takeover attempt. The term greenmail was often associated with Icahn
Today, his image has softened a bit.
He is no longer the quintessential corporate raider and is now often seen as a more benign activist investor.
“White knights, friendly individuals, or firms rallied by the target company as a defence against a hostile takeover are another source of profits for the asset stripper”
WEALTH TRAINING COMPANY
Fast forward, and Carl Icahn bets the pot with 78% of his portfolio in his asset fund, Icahn Enterprises, and CVR Energy (CVI)
Carl Icahn owns and manages Cahn Enterprises (NYSE: IEP), which is a diversified holding company with assets held in various sectors, from finance to automotive, food packaging, real estate, home fashion, and pharmaceuticals.
Cahn Enterprises is currently structured as a master limited partnership (MLP) with $10.8 billion in assets under management. Icahn is the majority owner of the MLP and controls all of IEP’s operations through Icahn Enterprises Holdings.
As noted above, Carl Icahn styles himself as a Dodd & Graham type of value investor, an investment strategy based on fundamental analysis. It is the original idea of value investing, where an investor seeks to buy equities with good prospects but have very low valuation ratios, such as price-to-book-to-book value.
But Carl Icahn has also admitted that he is impatient for results. Instead, he actively tries to bring about the change he seeks.
“Another plus of investing in IEP is that it pays a dividend of $4 per share and an impressive yield of over 25%” – Wealth Training Company
Analysing further where Carl Icahn bets the pot
Most of Carl Icahn’s sizable $10.8 billion in assets under management has been invested in Cahn Enterprises’ structured master limited partnership (MLP).
The MLP owns 406 million shares valued at $6.7 billion, or 61.8% of the portfolio total holdings.
What can be deduced from Carl Icahn’s holding in MLP is that the billionaire investor has skin in the game and is confident in his skills as a professional money manager.
Another plus of investing in IEP is that it pays a dividend of $4 per share and an impressive yield of over 25%.
But potential IEP investors should be warned, as it could also be a value trap, bearing in mind Icahn Enterprises stock has poorly performed over the years and is down 29% in 2024 when factoring in the dividend.
Moreover, over the last decade, it has lost nearly two-thirds of its value, though most of that occurred last year after short-seller Hindenburg Research, which accused Icahn of running a “Ponzi-like” business to simply pay itself dividends. It was subsequently contacted by the US Attorney’s office for the Southern District of New York.
Carl Icahn’s controversy doesn’t stop there, with his most recent fallout coming from the Securities & Exchange Commission fining IEP and Icahn $2 million for failing to disclose that he benefited from taking out margin loans that used the company’s stock holdings as collateral.
“the consensus on Wall Street is that CVR is not a good investment with a strong sell recommendation on the stock” – Wealth Training Company
Carl Icahn bets the pot on CVR Energy (CVI)
At 16.5% of IEP’s portfolio, CVR Energy is Carl Icahn’s second-largest position.
Carl Icahn has held the stock for over a decade, acquiring a majority stake in 2012 in the independent refiner, manufacturer of renewable fuels, and marketer of transportation fuels.
CVR Refining is refined through a subsidiary, CVR Refining, while CVR Partners manufactures the fertiliser through facilities in Kansas and Illinois.
CVR has performed better than IEP. The renewable energies company shares are down 26% year-to-date and are up 16% over the last ten years, but this could be due to its generous dividend that yields 10% annually. Analysts believe the CVI stock would have lost fifty per cent of its value without the payout.
However, the consensus on Wall Street is that CVR is not a good investment with a strong sell recommendation on the stock, though there is a one-year consensus target price of $27 per share, which implies a 29% upside.
Although CVR owns or has joint ventures in over 950 miles of pipelines with over 7 million barrels of crude oil and product storage, the company is not large enough to take advantage of economies of scale. Fitch Ratings also says CVR is at risk of volatile crack spreads and oil differentials. Its high dividend payout also works against it.
Carl Icahn bets the pot on two companies, with his second-largest holding on a renewable energy company with a strong sell recommendation
