Icahn started his style of investing in the 1970s and 80s. The press originally called him a “Greenmailer” as companies would just pay him off to go away. In other words they paid a premium for his shares to leave the company alone. In the late 1980s and 90s, Icahn became known as a “Corporate Raider” after he bought entire companies using cash and debt. Today he's known as an “Activist Investor.” But as Icahn told "60 Minutes," he's been doing the same thing all along, which is identify an undervalued company and use his deep pockets to angle for change in the company's strategy and boost the stock price. When Icahn wins, other investors win as well because investors are investing right alongside him. Let's take a look at where Icahn is currently investing.
Dell (NASDAQ: DELL)
Dell founder Michael Dell is attempting to take the company he founded private in a leveraged buyout at $13.65 a share. Many shareholders have opposed this move and have voiced their displeasure, but to no avail. Now they have a key ally in their fight in the form of Carl Icahn. In an interview with Bloomberg, Icahn said “I simply think that Dell is paying too little for the company and I'd like to note that other investors have said that before me.” Icahn has threatened years of litigation if Dell succeeds in taking the company private at what Icahn sees as too cheap of a price. Considering that the company has $7.35 per share in cash on its balance sheet, a buyout price of $13.65 is valuing the company's core business at just $6.30 a share. I'd have to agree with Icahn on this one (see more about other Dell opposition).
Herbalife (NYSE: HLF)
Carl Icahn is going up against hedge fund manager Bill Ackman over Herbalife. Ackman has publicly stated that Herbalife is a pyramid scheme and that he has shorted $1 billion of the company's shares. The stock traded as low as $24.24 after Ackman came public with his claims. The company's share price has been climbing steadily higher and Icahn accumulated his position between $35 and $38. The stock popped from $38 to $46 after Icahn's stake was disclosed. The company is currently trading at $41.50. Icahn recently upped his stake to 15.55% by buying an additional 2 million shares (read more on Icahn v. Ackman).
In looking at the company's business and financials, one sees a very profitable company. The company has been in business since 1980. In looking at one of Ackman's main points that the company is a pyramid scheme, a pyramid scheme doesn't go overlooked for over 30 years. And the company's business is highly profitable. Herbalife has a PEG ratio of 0.59 and an operating margin of 16.24%. The financials argue in favor of Icahn.
Transocean (NYSE: RIG)
Icahn is using his various tactics to angle for change at Transocean. Icahn wants a $4 dividend declared, and the company's board and chairman replaced. Before Icahn got involved, the stock was trading at $44 per share last December. Once his stake was disclosed in January, the stock shot to a 52-week high of $59.50. The company is currently trading at $53.13. From a valuation standpoint, Transocean does look extremely undervalued. The company has a current PEG ratio, or Price/Earnings divided by annual earnings per share growth, of 0.52. Transocean has an operating margin of 18.32% and a current book value per share of $43.50. Icahn added Transocean to his portfolio during the fourth quarter, making it his tenth largest position.
Navistar International (NYSE: NAV)
Icahn owns 11.8 million shares of Navistar, and his former employee and fellow activist Mark Rachesky recently disclosed that he owns a similar amount, joining his former mentor in the bid to change Navistar. So far, it's working. Shares jumped 45% last week as the company says a return to profitability is near. The company also appointed Chief Operating Officer Troy Clarke as the new CEO. Icahn, who has waged a campaign against Navistar management, endorsed the new hire. After the news was announced, the value of Icahn's stake in the company jumped from a value of $284 million to $414 million.
Netflix (NASDAQ: NFLX)
Last quarter Icahn disclosed in SEC filings that he had bought 10% of Netflix at around $58 per share. It was public information, and we all could have bought then. Many people have doubted Netflix and were short, with the company looking at 15% short interest. Not Icahn. Icahn has Netflix as his sixth largest position and makes up nearly 4% of his hedge fund's total value. In January the company reported a profit of 13 cents per share. Most analysts were expecting a 13 cent loss. The stock rose 24% after the news. Netflix is currently trading at $184.70. Imagine if you had bought when Icahn did? We all had the chance.
The Icahn Effect
The reason to invest alongside Icahn is that in many ways he fights for the little guy, the small shareholder. We don't have Icahn's immense wealth of over $20 billion. When he picks a fight with a company, they know he means business. He has the smarts and the firepower to get things done. The results speak for themselves with the money he has made for himself. It doesn't hurt if he makes a little for us along the way. Icahn was the second highest earner among hedge funds for 2012, making an impressive $1.9 billion and returning 28% for his hedge fund (see other higher earners here).