The following article was written by our guest author Insider Moneky. Carl Icahn may have lifted the company’s market cap by $20
billion in less than two days of trading last month, but Apple [s:AAPL] isn’t
his best stock pick. There are four positions in the multi-billionaire’s equity
portfolio that are worth looking at before Cupertino. We’ll show you which ones
and explain why.
At the end of last
quarter, Carl Icahn’s hedge
fund held long positions
in 19 different companies totaling a market value of $21.5 billion. With
Icahn’s pedigree as an elite activist investor, it’s not surprising that he’d
have that much money in U.S. equities, but it is a bit intriguing that four of
his eleven largest picks are small-caps.
According to our
research at Insider Monkey, hedge funds’ small-cap picks have the highest
potential to outperform the market over a sustained period of time. Our premium
newsletter, which employs this strategy, beat the S&P 500 by nearly 30
percentage points in its first year (discover how we did this here).
With that in mind,
let’s run through the four largest small-cap investments in Icahn’s equity
portfolio. Each stock had a market cap between $1 billion and $5 billion at the
end of the last 13F-filing period.
CVR Energy [CVI]
is Icahn’s largest small-cap holding, and his stake comprises more than
four-fifths of its outstanding shares. After grabbing exposure in CVR Energy
last year, Icahn’s initial goal was to push for a sale of the company to a
larger buyer. Once this move failed, he then guided CVR to spin off its
refining subsidiary in January. In his last filing, Icahn held $3.6 billion in
CVR Energy stock and $138 million in the spinoff, CVR Refining [CVRR].
The latter has
returned just 0.2% post-IPO, but CVR Energy shares are up almost 70% since
Icahn first established his stake in early 2012. The bet has been very
profitable for Icahn, and with gushing refining margins in its last few
earnings reports, there may be more appreciation on the horizon for CVR Energy.
Federal Mogul
[FDML], meanwhile, is another high-flier in Icahn’s equity portfolio. The
hedge fund manager’s second largest small-cap holding has been a key investment
since 2011. In the summer of that year, Icahn established his original position
in the auto part maker, and he has held a controlling interest ever since. Shares
of Federal Mogul are up a whopping 177% in the past six months on the back of a
massive earnings beat last quarter and a fairly extensive restructuring
program.
Herbalife [HLF]
needs no introduction, and is the next largest-small cap in Icahn’s portfolio.
The multi-level marketer had a market cap below $5 billion at the end of last
quarter, but its value has since risen by about 50%. Over the longer term,
Herbalife shares have more than doubled since the start of 2013, and the market
hasn’t been convinced by Bill Ackman’s “pyramid scheme” accusations (see his full presentation here).
Icahn has shown no
hesitation to call out Pershing Square’s manager for being “totally wrong” and
“ridiculous” in his words, but Ackman hasn’t shown any signs of closing his
short position in Herbalife. As for Icahn, he thinks the stock is still cheap at current levels.
Hain Celestial
Group [HAIN] is the next largest small-cap in the activist’s equity
portfolio, and surprise, surprise, this stock is having a good 2013 too. Shares
of the organic food and personal care product company are up 37% this year, and
Icahn closed out his $470 million position a little over two weeks ago. Since
he established his Hain stake in early 2010, the stock’s price has risen from
around $22 per share to the upper $70 range.
As CEO Irwin Simon
explains in a recent interview with CNBC, “Hain today is
positioned better than it was when Carl got in … because of the awareness of
healthy eating.” In other words, it’s the secular tailwinds—not just Icahn’s
influence on a couple M&A moves—that have driven Hain’s appreciation. The
organic boom doesn’t look like it will end any time soon according to the USDA, so
we still like Hain Celestial post-Icahn.
Disclosure:
none