Piggybacking Icahn
You don´t need to invest in Icahn Enterprises or in one of his investment funds to benefit from Icahn´s talent. The corporate raider is usually quite vocal about his positions, and the financial press follows his moves closely, so it’s quite easy to piggyback his stock picks.
Icahn owns a 10% position in Netflix, Inc. (NASDAQ:NFLX), which he acquired for around $58 per share via call options last year. The investor is sitting on a big fat gain at the current market price above $165, and Netflix has reported blowout earnings for the last quarter, so this may provide some peace for Reed Hastings and his team as long as the company continues performing well.
However, Icahn has been very explicit about his point of view: Netflix should be sold at a considerable premium to a bigger player like Amazon or Microsoft. “There is a very good argument that, at the right premium, somebody should buy Netflix,” said Icahn to the Wall Street Journal. “They’ve got a great platform. That is also why it is such a great acquisition candidate for someone”.
He has a good point: the company has an incredibly valuable leadership position in the online streaming business, but content is expensive and Netflix is under financial pressure. An acquisition would provide the acquirer with a fantastic growth opportunity, and Netflix could get the resources it needs in order to pay for content and finance international expansion.
As long as it doesn´t lose its innovative drive, Netflix could be worth more as part of a larger organization than on a standalone basis, so investors in the company had good reasons to feel comforted by the fact that Icahn will push for a deal if Netflix fails to deliver.
Chesapeake Energy Corporation (NYSE:CHK) is another good example to consider. The company is a major player in the booming US natural gas industry, but it has a lousy track record when it comes to corporate governance and capital allocation. Icahn has bought around 9% of the company, and he is fighting for some important changes at the top, as well an asset restructuring.
The good news is that he seems to be winning. The company´s controversial CEO Aubrey McClendon announced his departure last Wednesday, and the stock rose more than 6% in response. McClendon is under an internal board investigation regarding personal loans he allegedly obtained using minority stakes in company-owned wells, so this seems like a step in the right direction to defend the best interest of shareholders.
Considering Chesapeake’s management missteps over the last years, it´s not a far stretch to say that the company would be more valuable if it had a better management team, and having Icahn on board can certainly help in that aspect.
Bottom Line
Icahn may not be as popular as America´s most beloved billionaire, Warren Buffett. He is probably underappreciated because of his rough manners and combative attitude, but nobody can deny his extraordinary track record and investment expertise. If you can withstand short term volatility and you feel represented by his contrarian investment strategy, there are some solid reasons to invest alongside this tough guy.
The article Should You Invest With Carl Icahn? originally appeared on Fool.com and is written by Andrés Cardenal.
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