Icahn's Top Activist Holdings

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According to Investopedia, Icahn's strategy involves targeting a company he thinks is poorly run and whose stock price is trading below intrinsic value. Icahn buys the stock as it goes materially down. In fact, he thrives when the markets are on a downtrend; when everyone else is selling, he starts buying. He accumulates enough of an ownership position to lobby for a position on the company's board of directors. Usually his first demand is to dump the CEO and, oftentimes, to consider breaking up the company into separate parts and selling them off.

His most important holding is Icahn Enterprises (NASDAQ: IEP). He holds 35% of his portfolio in IEP. Carl Icahn is the major shareholder of Icahn Enterprises,  which aligns interests with external shareholders. Horizon Kinetics hedge fund also holds a concentrated bet in IEP. This is a very interesting company to analyze as it holds several real estate assets that are valued at less than their fair value on the balance sheet. For example, in February 2010, Icahn Enterprises purchased the unfinished Fontainebleau Las Vegas hotel and casino project, along with its 25 acres of land. The cost was $148 million, but its developers had invested $2 billion in construction costs prior to the purchase, so Icahn Enterprises paid roughly $0.08 on the dollar for it. According to Horizon’s investment thesis, Icahn’s real estate portfolio trades at 1.1x book value, but it should be valued at a higher multiple. For example, the Fontainebleau investment is valued at 8¢ on the dollar, but can be sold at $0.25. In addition to this example, there are other properties in Icahn’s portfolio that are valued at prices much lower than what they would fetch in the market.  

Icahn’s third position is Forest Labs (NYSE: FRX). I think he is attracted by the fact that Forest’s pipeline, the most robust in its history, includes product candidates in all stages of development across a wide range of therapeutic areas. Of course, Icahn wants to add his own directors to Forest´s management team in order to increase shareholder value. Forest has developed one of the most promising product pipelines in the industry, receiving seven product approvals in seven different indications in just the past five years that includes the recently FDA approval for aclidinium. I think that Icahn recognizes that Forest has built a track record of new product development that compares favorably to its peers, as well as many of the largest global pharma companies, but its management has not translated those strengths into shareholder value. Icahn has accused the management of Forest Laboratories of mismanagement, and plans to release company documents concerning the retirement of 84 year old CEO Howard Solomon which may prove mistreatment of shareholders or immunity from a hostile takeover.

Icahn has also been investing in Chesapeake Energy (NYSE: CHK) in the past quarters and this position represents 8.45% of his portfolio. Chesapeake is one of the ideal candidates for Icahn’s activist strategy. The company has some of the best oil and gas assets in the industry, but its shares have been affected by the natural gas bear market. As the price of natural gas has fallen, Chesapeake faced a cash problem, estimated to be over $10 billion in 2013. That’s why CEO Aubrey McClendon wants to move the company from natural gas drilling to more lucrative oil drilling. In order to pursue this ambitious strategy Chesapeake needs to enhance its cash position in the short term, which is why it announced plans to take out a $4 billion syndicated bank loan and to raise money by selling large chunks of its land portfolio. It recently identified a massive, 1.5 million-acre oil-rich holding in the Permian Basin in West Texas, which could fetch $5 billion or more. Icahn invested in CHK because he can change its often criticized, unstable board to one that acts as a source of stability and provides assurance to shareholders. Icahn believes that Chesapeake's management failed at amassing an astounding $16 billion funding gap, which he believes has contributed to the share price decline of over 55% from the 52-week high.

Lastly, Icahn added to his position in Navistar (NYSE: NAV) in the past quarter. This is another troubled company who's share price has fallen 52% from its 52-week high. Navistar reported two straight quarters of losses due to rising warranty claims for the company's new 13-liter engines. In addition, sales of Navistar's trucks have been falling recently as the company struggles to reach the U.S. government's pollution-reduction requirement for diesel engine exhaust. Navistar wants to change its exhaust treatment process in an attempt to comply with a 2010 requirement for an ultra-low level of smog-causing nitrogen oxide in engine exhaust, but this strategy will take long time to implement. 

As many other great investors Icahn is a great deal making man and you should always be looking at his investments to see if you can profit along with this Forbes 400 member!


martinzaldua has no position in any stocks mentioned. The Motley Fool has the following options: Long Jan 2014 $20 Calls on Chesapeake Energy, Long Jan 2014 $30 Calls on Chesapeake Energy, and Short Jan 2014 $15 Puts on Chesapeake Energy. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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