By Renee O’Farrell
Carl Icahn is an activist investor. Through his Icahn Capital Lp, Icahn takes larger than average positions in his investments. This way, Icahn is afforded a say in the company’s management and he can work to build shareholder value form the inside out. Here are the six key changes that Icahn made to his portfolio. From my analysis I conclude that investors in these names would be wise to follow Icahn's moves.
WebMD Health Corp (WBMD): WBMD provides health information to consumers and professionals in the U.S. through its website, private online portals, mobile platforms and its publications. Icahn bought 2,179,201 shares in the company during the third quarter. Since then, he has increased his position even further. On October 21, Icahn more than doubled his stake in WBMD, adding 2,365,816 shares to his position. Then, he increased his position in the company by another 16.61% on November 3, bringing his total stake in WebMD to 5,299,816 shares. The move may be bullish, and Icahn surely has something up his sleeve, but he isn’t alone. George Soros recently increased his position in WBMD to 3,471,885 shares. We think this type of aggressive activity and interest from a well-known and successful activist investor like Icahn is a good sign that new investors can benefit from a play with WBMD. After all, the role of the activist investor is to preserve shareholder value and maximize it. Icahn is certainly the man to do it. Plus, Soros is involved as well. WBMD's growth opportunities are too significant to ignore, particularly its valuable properties webmd.com and rxlist.com, an internet drug list. To us, this means WBMD is a buy.
Navistar International (NAV): NAV is a holding company. Its subsidiaries provide truck, engine and financial services under such names as Navistar International Transportation Corp, its principal operating subsidiary, and Navistar Financial Corp. In the third quarter, Icahn bought a position in the company of 1,765,647 shares. On October 13, he more than tripled his position in the company, adding 302.77% at $38.68 a share and bringing his total number of shares in the company to 7,111,426, but that wasn’t enough. On November 2, Icahn added another 1.97% at $41.09 a share, bringing his total shares in NAV to 7,251,426. On November 15, Icahn sold out of NAV completely at $41.12 a share, netting his Icahn Enterprises a tidy profit. It was a quick play for Icahn but a profitable one, netting an estimated $14 million for his fund. Investing in the stock now would be best for an investor who believes the stock will go down and wants to short it or for a long term position. Icahn would not have sold out so quickly if he believed the value was going to go up soon. That said, investors that already have NAV in their portfolios should probably sell like Icahn did. Many investors have not fully appreciated that NAV has followed Icahn's board recommendations far too late.
FederalMogul Corp. (FDML): FDML is an equipment manufacturer. It supplies powertrain, chassis and safety technology for vehicles of all sorts, from automobiles to marine equipment, from agricultural to heavy-duty. In the third quarter, Icahn bought 75,980,915 shares. FDML share prices ranged from $14.57 to $23.69 during the third quarter, with an average price of $17.99. Icahn increased his position in the company even further on October 4, when he bought another 131,100 shares for $15.47. FDML recently traded at $14.51. Analysts have given the company a mean one-year target estimate of $16. Icahn’s FDML play is an underdog. During the third quarter, both John Keeley and George Soros sold out of their positions in the company, but, then again, they aren’t activist investors. Icahn is. It’s always a little worrisome when you see big name investors leave a stock, but this is the point activist investors come in. Given Icahn’s reputation, odds are he would not have bought in so aggressively if he didn’t truly believe he could turn things around, at least enough to make a strong profit.
American Railcar Industries Inc. (ARII): ARII designs, manufactures and sells railcars. Icahn bought 11,564,145 shares of the company during the second quarter in a new position. In the third quarter, Icahn bought another 246,453 shares of the company. During that period, ARII share prices ranged from $14.25 to $25.80. On October 3, Icahn added another 185,842 shares to his portfolio at $14.69 a share, then, the next day, he added another 9.63% at $16.41 a share (203,742 shares). ARII is currently trading at $25.08 a share with a one-year estimate of $29.48. ARII is pushing up quick in price. This is the sort of stock you buy in momentum since you missed the pricing valley. When the price becomes abnormally depressed in a trading day, that’s the time to buy. Look to buy ARII close to $24 a share. If analyst target estimates are right, you’ll make 20%.
El Paso Corp. (EP): EP is a pipeline company that was recently acquired by Kemper Morgan (KMP) in a deal worth over $20.7 billion. The acquisition pegs KMP as the largest pipeline operator in the U.S. Carl Icahn bought a new position in the company during the third quarter, buying 65,983,829 shares of the company. During that time, EP share price ranged from $16.93 to $20.92. EP is currently trading at $24 a share with a one year target estimate of $29.48. There is a lot of potential upside to this stock given its position as the largest pipeline operator. There are scales of scope and economy that the team of KMP and EP are going to be able to maximize and even leverage as the case may be. We absolutely agree with Icahn on this one as a merger arbitrage play. We are bullish on the profitability of the combined midstream assets.
Motorola Solutions (MSI): MSI manufactures and sells a variety of communications and business services equipment. It makes everything from wireless LAN to mobile computers, handheld bar code scanners to vehicle-mounted computers. Icahn added 25% to his position in the company during the third quarter, bringing his total stake in the company to 38,292,235 shares. In the third quarter, the price for MSI stock ranged from $38.72 to $46.37. It recently traded at $45.59. Google (GOOG) announced plans to buy Motorola’s wireless division, Motorola Mobility, in a $12.5 billion deal in August. The deal gives Google (GOOG) access to Motorola’s vast collection of patents, numbered at over 17,000. MSI will be in a good position with all that extra cash flow. Granted, it will depend on how well the company uses that influx but could be exactly why Icahn is on board. With Icahn having a say in things at MSI, we agree this is a buy.