Follow Carl Icahn Into Nuance Communications

| About: Nuance Communications, (NUAN)

For those that read my article on November 14 recommending to purchase Icahn Enterprises (NYSE:IEP) at what was then $113 per share have enjoyed gains of approximately 7% in just over two weeks as it sits now at approximately $121 per share (far outpacing the S&P 500 approximately 2% over the same time frame). Not a bad return, but again, I recommended in that article, as I am doing myself, to hold that stock for the long-term and to judge investment returns over the long run. It is always worth being reminded that stocks in the short run are a voting machine, but in the long run a weighing machine (credit for that great wisdom goes to Benjamin Graham and echoed frequently by famed investor Warren Buffett). Moving along, one of the most active stocks this past week on a down note was Nuance Communications (NASDAQ:NUAN). The company was hit hard as it came in with disappointing guidance and investors expressed their disgust by sending shares lower approximately 15% on massive volume of 64 million shares: 16 times its daily average. This stock is of great interest to me though as the largest shareholder by far is sure enough Carl Icahn at approximately 17% and not far from the company's poison pill provision of 20%.

Carl has been simply stellar throughout his investment career (as noted in this article) and done particularly well the past 12-18 months with investments such as Netflix (NASDAQ:NFLX), Herbalife (NYSE:HLF), Hain Celestial (NASDAQ:HAIN), and Forest Laboratories (NYSE:FRX). However, one glaring weakness has been Nuance, which is now down 30% the past six months and 40% year to date. To give a quick background on the company, Nuance is a premier voice-recognition and languages solutions software company. Perhaps the company's most well-known product is "Siri" which is the voice recognition software present on every Apple iPhone. Financially, the company is starting to look cheap at just a forward P/E of 11x (this is including the company's revised downward guidance) while churning approximately $400 million annually in free-cash-flow. This translates into roughly a 10x price/market capitalization ratio and 16x price/enterprise value, which is definitely reasonable. The company is also well capitalized with approximately $875 million in cash and virtually zero short-term debt allowing the company to have some great options, including repurchasing more shares at these depressed prices.

What really entices me most about the company though is that Icahn Enterprises just recently in October gained two board seats and the company has routinely showed through Forest Laboratories, Herbalife, and other companies throughout the years that ALL shareholders gain when Icahn gets a board seat(s). Consequently, Icahn and company will now be able to push forward with some great potential shareholder enhancing activities, while investors are also able to fall-back on owning a world-class software company.

Disclosure: I am long NUAN, IEP. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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