The private equity investor and CEO of Icahn Capital LP, Carl Icahn, is unquestionably one of the greatest investors in the history of the world. The above-mentioned firm is a diversified holding company based in New York City which mainly invests in the following sectors: railcar, real estate, metal and auto companies. Carl Icahn is also one of the most well-known activist shareholders and investors, taking large positions in public companies such as Yahoo, Time Warner and Blockbuster and attempting to make important changes in these companies. The latest 13F filing discloses that the equity portfolio managed by Carl Icahn is valued at $32.05 billion despite consisting of merely 20 active positions. Let’s now take a look at four small-cap stocks owned by Icahn, all of which rank in his top 11 long positions. They are CVR Energy Inc. (NYSE:CVI), Federal-Mogul Holdings Corporation (NASDAQ:FDML), Herbalife Ltd. (NYSE:HLF) and American Railcar Industries Inc. (NYSE:ARII).
Hedge funds and other big money managers like Icahn tend to have the largest amounts of their capital invested in large and mega-cap stocks like Apple Inc. (NASDAQ:AAPL) because these companies allow for much greater capital allocation. While Icahn himself does invest in numerous small- and mid-cap companies, a large chunk of his portfolio is nonetheless devoted to Apple Inc. (NASDAQ:AAPL) and eBay Inc (NASDAQ:EBAY). That’s why if we take a look at the most popular stocks among funds, we won’t find any mid- or small-cap stocks there. However, our backtests of hedge funds’ equity portfolios between 1999 and 2012 revealed that the 50 most popular stocks among hedge funds underperformed the market by seven basis points per month, showing that their most popular picks and the ones that received the bulk of their capital were not actually their best picks. On the other hand, their top small-cap picks performed considerably better, outperforming the market by 95 basis points per month. This was confirmed through backtesting and in forward tests of our small-cap strategy since August 2012. The strategy, which involves imitating the 15 most popular small-cap picks among hedge funds has provided gains of more than 139%, beating the broader market by over 80 percentage points through the end of April (see the details). So then, let’s take a look at Icahn’s top small-cap picks as of the latest reporting period.
Icahn did not change his position in his top small-cap pick, CVR Energy Inc. (NYSE:CVI) during the first quarter, with the stake remaining at 71.20 million shares valued at $3.03 billion. The share price of CVR Energy has risen by nearly 4% since the beginning of the current year, which signals a positive turnaround for the stock, which has dropped by as much as 16% during the previous 12 months. At the end of April CVR Energy Inc. (NYSE:CVI) reported net income of $54.9 million and net sales of $1.39 billion, which certainly disappointed when looking at the financial results of the previous year. However, if taking a closer look at the industry CVR Energy operates in, we can easily conclude that the first quarter results of this company suggest solid financial and operational performance. And while the company’s current cash dividend of $0.50 per share is a decline from the $0.75 dividend payments it has made since mid-2013, the payments still produce a solid yield of 4.95%. Another fund that remains confident in CVR Energy’s future performance is Roger Ibbotson’s Zebra Capital Management.
Icahn increased his equity stake in Federal-Mogul Holdings Corporation (NASDAQ:FDML), a Michigan-based automotive supplier, to 138.59 million shares, valued at $1.84 billion, an increase of 14%, making it one of the few holdings he added to during the first quarter. Federal-Mogul Holdings Corporation (NASDAQ:FDML) has recently disclosed its financial results for the first quarter and though the appreciation of the U.S. dollar negatively affected the company’s activities and financials, it nonetheless managed to generate first quarter net sales of $1.84 billion, which marks an increase of 3% year-over-year. Despite the fact that Federal-Mogul’s shares have plunged by nearly 19% in 2015, numerous hedge funds, including Murray Stahl’s Horizon Asset Management and Mario Gabelli’s GAMCO Investors, have increased their already sizable stakes in the stock.
Icahn’s equity stake in Herbalife Ltd. (NYSE:HLF) also remained unchanged during the most recent quarter. His position in the global nutrition company amounts to a number of 17.0 million shares valued at $726.92 million as of March 31. Herbalife’s share price has soared by more than 37% since the beginning of this year, which has certainly pleased investors like Icahn. Despite the fact that the company’s worldwide net sales of $1.11 billion dropped when compared to the net sales generated during the first quarter of the previous year, Herbalife’s chairman and CEO Michael Johnson declared that his company’s performance outperformed their own expectations. The decline in net sales was mainly caused by the detrimental effect of currency exchange rates. Other hedge fund managers with stakes in Herbalife include Allan Teh and Derek C. Schrier.
Icahn also stood pat concerning his holding of American Railcar Industries Inc. (NYSE:ARII)’s stock, which amounts to slightly more than 11.87 million shares valued at $590.36 million. American Railcar’s share price has experienced a surge of more than 11% throughout the last four weeks as analysts are more optimistic on the future performance of the company. American Railcar Industries has been seeing strong activity in earnings estimate revisions for the upcoming quarters, suggesting that the stock might be a great pick for investors. Moreover, the North American manufacturer of covered hopper and tank railcars has a P/E ratio of 10.45 and P/S of 1.44, both of which are lower than the industry average, implying that the company is relatively undervalued in relation to its competitors. Murray Stahl’s Horizon Asset Management also maintains a relatively large stake in American Railcar Industries Inc. (NYSE:ARII).
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