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20 Year professional investment management vet. Dad. Beatles fan.
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  • Tech Is Dead...for Now: What Carl Icahn Is Telling The Market

    It's often said that the thing that separates humans from other animals is our ability to recognize patterns. This morning, it was revealed that super investor Carl Icahn has taken a nearly 9% stake in metals mining giant Freeport -McMoran, Inc. (NYSE:FCX). A garden slug could figure out what Icahn's long game is.

    After making a bloody fortune taking Netflix (NASDAQ:NFLX) shares off of the table earlier this year, Icahn has been redeploying capital into two of the most reviled and abused sectors of 2015: energy and commodities. Are those trades currently working out well? It would appear that Icahn, as we say in the South, is taking a "good ol' fashioned country ass whuppin'". But as we're also wont to say, "The boy ain't dumb and he didn't get rich by accident."

    At times, Icahn's strategy resembles a very bright kid playing with a BIG set of Tinker Toys. Everything fits together perfectly and whatever it is he's building keeps getting bigger. It appears that he could be building some kind of giant, integrated, export driven energy/commodity /materials beast. Or, it could just be an early bet on global economic recovery and he's buying low. Either way that's where the new money is flowing. It's not going to technology.

    Here are some of the components.

    Chesapeake Energy (NYSE:CHK) - The nation's second largest natural gas producer, Chesapeake is dealing with plummeting natty gas prices. The company recently tightened its belt by eliminating its common dividend to conserve cash. CHK has also announced plans to sell certain assets, i.e. gas fields. Shares have been pummeled mercilessly to less than half of their book value. Icahn owns 11% of the business.

    Cheniere Energy (NYSEMKT:LNG) - Cheniere does two things: operating liquefied natural gas storage terminals and liquefied natural gas marketing. Yeah...it's basically a warehouse and a store. Why now? The Federal government has finally approved the export of LNG to foreign countries. Icahn owns, roughly, an 8% stake.

    CVR Energy (NYSE:CVI) - As a holding company, CVI operates two primary businesses: petroleum refining and nitrogen fertilizer. As far as products go, those are about as basic as you get. Lower energy prices will improve margins in the refining business. Icahn is the Chairman of the Board as he owns 82% of the stock. CVI is by far the largest holding in the portfolio representing nearly 10%.

    Manitowoc Company (NYSE:MTW) - An equipment manufacturer, MTW has two primary business segments in food service equipment and cranes and related products. Icahn's interest, it would seem lies in the latter as MTW services the energy, petrochemical and materials handling sectors. Icahn owns nearly 8% of the company.

    So with Icahn betting on a lot of stuff that, as Dennis Gartman would say, hurts when you drop it on your foot, is he saying that tech is dead? Well, tech is never really dead. But maybe Icahn is saying that it's not a terribly interesting place for investment going forward.

    Those of you with more than a few gray hairs (or fewer hairs than you had when you showed up for your first day of work after college graduation) may remember the period after the Tech Bubble popped at the end of the 20th century. The while the Internet continued to grow as an integral part of the economy there were no giant, tech game changers for the first half of the first decade of the 21st century.

    The rise of the smartphone, the tablet, and the applications through which we access and consume content on them was the true disruption on the scale of the proliferation of the internet in the 90's. But have we hit a wall? Maybe. Maybe not.

    Granted, Icahn still owns plenty of tech shares including is ginormous chunk of Apple Computer (NASDAQ:AAPL). And investors will probably continue, in the near to medium term, continue to make money with other giant, mature tech names like Microsoft (NASDAQ:MSFT), Cisco Systems (NASDAQ:CSCO), or Intel (NASDAQ:INTC).

    But Icahn's sale of the Netflix stake and his heavy bets on the energy/commodities/materials complex may be telegraphing his thoughts on what the next big thing, or lack thereof, might be. Are other big Icahn tech sells in the future cards? It wouldn't surprise me.

    Disclosure: Long CHK common stock and bonds in personal, family, and client accounts

    Aug 29 1:16 PM | Link | 4 Comments
  • Resistance Is Futile

    I don't use the instablog very often. But something's been on my mind. So I figured I'd get it out there before I forgot about it.

    Recently, I met with what I would consider a difficult but seemingly loyal client (I've worked with him for nearly a decade..Although I have a theory that no one else will take him). I say that he's difficult in that he constantly asks my advice, agrees with it, but only agrees to act when "the market goes WAY down."

    I don't believe anyone should be uncomfortable making a decision. But here's the deal. Market timing is futile. A fool's errand.

    Is it better to buy at certain times than others? Sure. But it should not dictate putting money to work. If that were the case, we'd sit in cash most of the time making 0.000000000001%

    I'm not a buy and hold forever guy. Eventually, it makes sense to sell stuff. Fundamentals deteriorate. Valuations get stupid. If I buy it at 10 times earnings and the multiple expands to twenty two times, it probably ok to give it someone who's willing to pay a higher price.

    I don't know. I guess it's because I'm a value oriented, bottoms up guy. The market's up? I don't care. The market's down? I don't care. The stock is trading at 80 cents on the dollar to it's tangible value with a forward P/E of 7 and a 13% dividend yield with solid fundamentals? You have my attention.

    There are always bargains out there. The market's just a place to go find them.

    Jun 11 4:36 PM | Link | 1 Comment
  • Even Better Than The Real Thing
    If you entered or finished puberty before1983, you were probably a U2 fan for at least an album or two. Fans of a band will always argue incessantly about which record was the best. The somewhat pretentious The Joshua Tree snagged the album of the year Grammy in 1988 and How To Dismantle An Atomic Bomb took home a Radio Flyer wagon full of hardware including album of the year in 2006. The consensus here at Yieldpig is that 1993’s Achtung Baby is probably their finest mature album (we can talk about Boy, October, and War another time). The record garnered the band a best rock group Grammy, threw off a slew of hits, went platinum eight times over and is considered one of the best rock albums ever. Still, no best album Grammy. Funny that. Even with a song as cool as “Even Better Than The Real Thing”. The album was rough around the edges, dark, moody, risky, and experimental. Which got us thinking about the other “real thing”: Coca Cola (NYSE:KO).
     
    According to our editor-in-chief, KO has been touted as THE must have equity in a portfolio for the better part of 15 years. Everyone loves it. Warren Buffet owns a buttload. The story is the same as it was 15 years ago: number one brand globally, international, especially emerging markets will drive growth and so forth. KO is a regular member of the Standard and Poor’s Dividend Aristocrats list having increased its dividend every year over the last 47 years. S&P currently rates the stock a five star strong buy. What’s not to like? If you purchased $10,000 worth of KO in January of 1995, it has pretty much tripled having turned in an average annual return of 7.39% which includes reinvesting dividends. Not bad. Call us iconoclasts or unrealistic, but where’s the fizz? After the run up from ’95 to ’99 (26ish to 59ish), the stock is basically where it was 10 years ago on a price basis. And this is during the explosion of the emerging markets during which the economies of Brazil, India, and China became real global market players. Is it truly the real thing? What if you’d had made an Achtung Baby investment and purchased $10,000 worth of money manager Alliance Capital’s (now Alliance Bernstein, symbol AB) MLP units?
     
    Your $10,000 investment grew to $81,059, although at the market top of 2007 it was worth $191,090 …ouch…and returned 14.96% annually with dividends and distributions reinvested. Alliance is a top flight manager. They may not be in every refrigerator but they probably affect your everyday life more than you think through 401(k)’s, pensions, and other institutions that require their expertise. 20% of KO’s total return came from dividends versus 84% for AB. That’s eight times platinum. We’re not hating on Coke. If you bought it, you did great. But we think you can do better. There’s no rule saying you have to follow everyone. Dig. Don’t fear edgy, adventurous, or experimental. More often than not it pays off.
     


    Disclosure: No Positions
    Feb 17 11:36 PM | Link | Comment!
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