Carl Icahn (Trades, Portfolio) doesn’t speculate. His management company’s holdings are concentrated in 16 stocks with a total value greater than $20 billion. The main holding, Icahn Enterprises (44% of the portfolio), pays out a very lucrative 10% dividend. Go down the concentrated list of stocks in Icahn’s portfolio and in the sixth and seventh spots are Newell and Xerox, both new positions and undervalued.
Newell Brands (NWL, Financial)
At the end of January, I highlighted Newell as a possible value investment. The 3.4% annual yield, forward price-earnings ratio around 10x, and the many guru owners that had bought at far higher prices made it look pretty good.
In fact, there is still a who’s who of guru owners in Newell along with Icahn. Jim Simons (Trades, Portfolio) is out, but Larry Robbins (Trades, Portfolio) now has built a huge stake north of 27 million shares. Joel Greenblatt (Trades, Portfolio), Mario Gabelli (Trades, Portfolio), Paul Tudor Jones (Trades, Portfolio), Ray Dalio (Trades, Portfolio) and Murray Stahl (Trades, Portfolio) all have decent positions.
Icahn had this to say back in March: "I believe Newell itself is undervalued and that's why I bought it." He purchased Newell shares for roughly $25 per share. He also joined Larry Robbins, who calls himself a “suggestivist” investor instead of an activist, preferring behind-the-scenes negotiation to issuing public demands. That’s what Icahn is for.
Newell produces a variety of consumer and commercial goods from power tools to child car seats with brands that include Sharpie, Paper Mate, Mr. Coffee and Coleman. And, it’s been a solid growth story as well with revenue, income and book value all up significantly over the last decade. It also generates close to $1 billion in operating cash that Icahn and Robbins could use to make the company more valuable in the short term.
No company missed the technology revolution as badly as Xerox (case in point), but now with Icahn owning over 23 million shares at a reported price of $28.78, a $675 million stake, the company may be able to at least produce solid returns for shareholders in the next three to five years.
Icahn is joined by Darwin Deason who founded Affiliated Computer Services in 1988, and sold it to Xerox for $6.4 billion in 2010, becoming the largest individual shareholder at the time. They prepared a 44-page analysis of Xerox that called for “rescuing and revitalizing an American icon” to showcase how a partnership with Fuji was ruining the company. Xerox canceled an acquisition deal with Fujifilm worth $6.1 billion at the beginning of May to appease Icahn and Deason, who think that the stock should be closer to $60 a share. That would put the market cap around $15 billion, a value that is 110% higher than yesterday’s close.
Is Xerox worth owning? If you believe Icahn’s premise, yes! If you don’t, then no.
Fuji offered $9.80 a share in cash and a 50.1% ownership stake in the new combined entity, a joint venture of Fuji in Asia. A lot of unknown variables in that second equation makes it hard to determine the value of that deal. However, Icahn is rarely wrong and with Deason on board, the two billionaires should be able to get what they want.
Xerox operates in an industry that has been crushed by the internet and innovation, but the 110-year-old company has come a long way from charging $95 a month to rent a copier in 1959. A once Fortune 100 company, it has steadily declined in brand value for going on two decades now.
The fact that any investor wants to revitalize its business should be a happy day for long-term investors in Xerox stock, which peaked above $160 early in 1999.
Make the trade for Icahn and then get out before he does.
Disclosure: I have no positions in XRX or NWL.
