Billionaire Carl Icahn’s Favorite Stocks

By Meena Krishnamsetty - June 14, 2012 | Tickers: AMLN, AZN, BMY, CHK, MRK | 0 Comments

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At 76 years old, Carl Icahn does not seem to be slowing down at all. Last year Icahn did return his hedge fund's outside money to focus on investing his own funds but his activity as an activist shareholder does not seem to have waned significantly.

Just recently he was proposing a new slate of directors for Forest Laboratories, which has been up ~18% YTD. Shareholder activists take an equity stake in a public company and proceed to pressure management into making certain changes or replacing management to achieve goals that benefit shareholders. Icahn has been doing this since the 1980s involving companies like B.F. Goodrich and more recently, Imclone, The Walt Disney Company, Biogen, Mentor Graphics, and Clorox. At one point he owned part of the bankrupt Fontainebleau Las Vegas, declaring that "the acquisition of the Fontainebleau property was a great opportunity to purchase a distressed asset that I believe has considerable value." Icahn has been very successful through this strategy of taking controlling positions in companies to enact change, racking up a net worth of $14 billion.

Top 10 Holdings:

Icahn’s major new addition to the portfolio is Amylin Pharmaceuticals (NASDAQ: AMLN), which is currently fielding takeover bids by big pharma companies like Bristol-Squibb Myers (NYSE: BMY), AstraZeneca (NYSE: AZN), Sanofi (SNY) and Merck (NYSE: MRK). BMY, MRK, SAN and AZN in particular are looking to add ALMN’s commercial diabetes drugs to their drug portfolios to gain solid footing in the diabetes markets. Depending on how high the bidding goes, it may be a cheap or expensive way for the ultimate buyer to get that footprint.

The lure of AMLN is Bydureon, its approved type 2 diabetes drug. The global diabetes market is an extremely attractive one with a forecasted CAGR of 7% through 2017. AMLN also has Byetta in its product portfolio, which is also a drug for type 2 diabetes that has been commercially successful.

Our view is that AstraZeneca is the most in need of a more robust pipeline and will stick around in the bidding process. In April, AZN announced a $1.3 billion acquisition of Ardea Biosciences and this is an extension of the company trying to find quick revenue replacements for Seroquel, Nexium, and Crestor expiries. BMY trades at 17.8x forward earnings, MRK at 10.4x, SAN at 8.6x, and AZN at 6.7x. Healthcare-focused hedge funds Visium Asset Management and Healthcor Management also had bullish positions in AMLN at the end of March.

Icahn also added to its existing holdings in CVR Energy (CVI), a petroleum refiner of transportation fuels and producer of nitrogen fertilizer. Icahn and his various affiliates control 80% of outstanding shares of CVI. The remaining 20 prevents Icahn from completing a short form merger, so for now CVI will continue to trade publicly. We would take gains and exit.

Icahn also recently initiated a 50.1 million share (a 7.6% stake) in Chesapeake Energy (NYSE: CHK). The company is experiencing funding problems and recently agreed to sell its pipeline assets for $4 billion to Global Infrastructure Partners (GIP). Chesapeake’s fundamental problem is its leverage and low natural gas prices. This is a very risky bet at this moment.

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