Carl Icahn is one of the world's top activist investors. Mr. Icahn is a legend in the investment world for his ability to identify undervalued companies and drive operational and strategic changes to increase their value.
Mr. Icahn has 57% of his investment portfolio invested in a single stock. icahn enterprises (NASDAQ:IEP). The stock offers an impressive dividend yield of nearly 29%, but has come under significant scrutiny over the past year. As a result, the company's price has fallen 66% since May 2023. Icahn Enterprises offers an attractive dividend, but there are some things to consider before buying the stock.
Carl Icahn's investment approach
Carl Icahn has an impressive history of successful investing. Mr. Icahn takes the following values approach: berkshire hathaway (NYSE: BRK.A)(NYSE: BRK.B) CEO Warren Buffett does the same. However, there are some significant differences in their investment styles.
Mr. Buffett tends to take a hands-off approach to Berkshire's stock purchases, allowing management to operate independently without Mr. Buffett's intervention or ongoing oversight. Buffett and his team at Berkshire take a long-term view of stocks, so they invest in management teams they trust will keep the business running smoothly.
Meanwhile, Mr. Icahn is taking an active role in transforming the management team and making other changes that he believes will turn the business around. Mr. Icahn was one of the first activist shareholders, earning him the nickname “corporate raider.” One of his most recent successes is one he purchased in 2014. eBay and encouraged it to be spun off. PayPalwhich generated impressive returns in subsequent years.
Evaluating the performance of Icahn Enterprises
Mr. Icahn conducts most of his activist investing work within the investment division of Icahn Enterprises. So he seeks out undervalued companies and seeks to improve their valuations by cutting costs or making strategic acquisitions that increase efficiency.
By the end of last year, investments in the sector amounted to $3.2 billion, including both long and short positions. Some of our holdings include: crown holdings, southwest gas holdings, Illuminaand Bausch Health Enterprises. Mr. Icahn's investment arm has struggled mightily over the past five years, losing $2.3 billion.
Icahn's short-selling activity was one reason for the poor investment performance. Mr. Icahn had taken large short positions over the past several years, including in credit default swaps (CDS), which he used to short commercial mortgage-backed securities.
In a 2023 letter to investors, Icahn said his team had “deviated from an activist approach over the past few years, shorting (hedging) more than necessary.” “Going forward, we will continue to stick to our strategy and focus on activist strategies while maintaining appropriate hedging,” he continued.
In addition to investments, Icahn Enterprises holds controlling interests in several companies in the energy, automotive, food packaging, and real estate sectors. Its largest holding is CVR energy, owns 66% of the company's outstanding shares. CVR Energy is primarily engaged in refining and selling petroleum and manufacturing nitrogen fertilizers, and has been one of the better stocks for Icahn Enterprises over the years.
Icahn stock is a target of short sellers
Icahn Enterprises has fallen significantly over the past year. One of the main reasons was a report from Hindenberg Research, a company known for short selling. According to the report, Mr. Hindenberg claimed that Icahn Enterprises' net asset value was overstated.
Mr. Hindenberg went on to say that Icahn Enterprises was valued at 218% of its net asset value (NAV) at the time due to retail investors attracted by its high dividends and the opportunity to invest in a legendary activist investor. He stated that the company was trading at a premium, and argued as follows: The company did not have enough cash flow to support distribution.
Is Icahn Enterprises stock a buy?
Icahn Enterprises offers a high dividend yield that may appeal to income-oriented investors. Carl Icahn said the company is returning to its activist investor roots, which should help improve investment performance, which has been a drag on the business for years.
However, the company has limited work to do, as its debt-to-equity ratio has increased significantly over the last year, and the dividend could be cut further. Therefore, I would like to avoid buying stocks today.
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Courtney Carlsen has no position in any stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway and PayPal. The Motley Fool recommends Bausch Health Companies, Illumina, and eBay and recommends the following options: A July 2024 $52.50 short call on eBay and a March 2024 $67.50 short call on PayPal. The Motley Fool has a disclosure policy.
Is Icahn Enterprises stock a buy?Originally published by The Motley Fool
