Carl Icahn (Trades, Portfolio) is a legendary activist investor who, despite being 86 years old, is not afraid of a fight with company boards. He is the founder of Icahn Capital Management, which had ~$21 billion worth of stocks in its most recent 13F portfolio for the third quarter of 2022. He also owns Icahn Enterprises L.P. (IEP, Financial) is a diversified holding company. The net asset value for Icahn Enterprises has gone up by over $1 billion in nine months according to Ican himself.
Investors should be aware that 13F reports do not provide a complete picture of a guru’s holdings. They include only a snapshot of long equity positions in U.S.-listed stocks and American depository receipts as of the quarter’s end. They do not include short positions, non-ADR international holdings or other types of securities. However, even this limited filing can provide valuable information.
In a candid and revealing interview with Forbes in November 2022, Icahn revealed some rare insights about his portfolio and his thoughts on the stock market. In this article, I have summarized the interview and added my own notes; let’s dive in.
How Icahn is investing
Icahn says he is “very hedged” and apparently he is short the S&P 500 and some companies, though as short positions are not required to be reported via the 13F or other regulatory filings, we only know what Icahn chooses to tell the public on these positions. The S&P 500 is down 20% from its all-time highs in December 2021, but Icahn believes it may have further to fall.
Icahn looks to invest in companies with “hidden jewels” that are “not well managed," then seek to replace the board members to unlock the hidden jewels of the business.
Icanh and his Twitter win
Twitter (TWTR, Financial) has been practically inescapable in the news recently, so I won't bore readers with going into too much detail. Before Elon Musk’s rollercoaster takeover of the company, Icahn said he had been studying the company for a while and loaded up on 15 million shares at ~$30 per share, which was confirmed in the third-quarter 13F filing. Icahn says he bought when the stock went down after it first seemed like Musk would back out of the deal. Icahn believes Musk is the “perfect person” for the company. He even said that if “Musk didn’t do the deal," he himself would have probably launched a proxy fight to try and gain control of the company. In total, Icahn says he made ~$250 million on Twitter after the buyout.
Crown Holdings investment
Icahn’s latest 13F filing with the SEC shows he purchased a large stake in Crown Holdings (CCK, Financial), formerly Crown Cork & Seal, at an average price of $93 per share. The company makes metal cans, aerosol containers and metal packaging. On the face of things, this doesn’t seem like an exciting company, but the company fulfills a valuable role in the supply chain of goods. Therefore it is no surprise that this popular “unpopular” company caught the attention of legendary investor Peter Lynch during the 1980s. Lynch believes investing into “boring” companies can often result in great investing returns as they often attract less competition which means higher returns on capital (and usually cheap valuations).
Icahn believes this could also be seen as a growth industry, as the use of plastic packaging is slowly declining for environmental reasons. Icahn believes he can transform Crown Holdings by discouraging its management from making ineffective acquisitions.
Icahn says he is skeptical of companies that make lots of acquisitions in adjacent industries as he believes “synergy is hard to get." His insight is backed up by studies that indicate that most acquisitions don’t generate shareholder value in the long term. Icahn gave the example of General Electric (GE), which was run by Jack Welch. Welch managed to get synergies early, on but then afterwards the company declined. GE has seen its share price plummet by over 80% since the highs of the year 2000.
Back to Crown Holdings, Icahn believes management should “stick to the can business." He is aiming to get representation on the board but doesn’t know whether this will be given smoothly.
CVR Energy
Icahn has been a major bull on the traditional energy industry. For example, Icahn Capital Management owns large positions in stocks such as Cheniere Energy Inc (LNG, Financial) and Southwest Gas (SWX, Financial). Icahn also 70% of the total shares outstanding of CVR Energy (CVI, Financial), a refinery company, as of the third quarter's end.
Icahn believes the refinery business was destroyed by strict ESG legislation. The larger companies slowed down on building new refineries due to negative legislation and investor sentiment. Additionally, during the early days of the pandemic, many of the smaller refineries went out of business due to their incredibly weak balance sheets.
Of course global warming is an issue and stopping climate change is a major initiative, but in the meantime, high fossil fuel prices are not good for most people. The Russia-Ukraine crisis has also exacerbated the issue. The “crack spread,” which is the theoretical margin for refining companies and gets its name from the refining process which “cracks” the crude oil into refined products such as gasoline and diesel, is the difference between the price of crude oil and the price of refined petroleum products. For a refinery company, higher is better, as it means more profit. Icahn notes the diesel crack spread has gone from ~$20 to $70. This has resulted in the Ebitda for one of his companies (presumably CVR Energy, but it's not clear in the interview) increasing by $800 million.
Despite the strong business performance, Icahn understands the big picture and the calls for windfall taxes on energy companies. But this is not as simple as it sounds as during the bad times, Icahn invested approximately $400 million to “save that refinery."
Diesel is incredibly important according to Icahn, as it is used to generate electricity for power plants in Europe as a temporary solution. For example, in Ukraine, its nuclear power plants have continually lost power and had to resort to backup diesel generators. Also, bunker fuel, which is a highly pollutant fuel used in shipping, is expected to be replaced by diesel.
Icahn on the stock market
Icahn is fairly pessimistic on the stock market overall and keeps things well hedged. He believes we have a major problem with the economy. The first issue is inflation, which was 7.7% in October and 8.2% in September on the CPI. This is on a downward trend from the high of 9.1% in June but is still well above the Federal Reserve's 2% target.
Icahn is an activist investor who has spent decades of his life battling CEOs and boards of large corporations. He believes we have had a time of “rubber stamp boards." The lack of governance at these boards has meant that corporate America has continually borrowed too much money and bought stocks at high valuations. Now Icahn believes we are all paying the price.
Icahn supports Fed Chairman Jerome Powell on his strategy to reduce inflation through higher interest rates. However, higher interest rates increase debt-serving costs, which reduces earnings for businesses.
According to Icahn, the median household net worth is non-existent as half of the households in the U.S. have no net worth (due to having no equity or savings). The other half has their wealth in their properties and in the stock market, but with prices declining in stocks, this is a major issue. He believes “things will get worse before they get better."
He is still optimistic in the long term and believes that there are some great companies which in three to five years will look cheap today.
Final thoughts
Carl Icahn (Trades, Portfolio) is a legendary investor who is still going strong and continues to make solid investment decisions. His philosophy is based on investing in stocks with “hidden jewels," and he has lots of valuable insights to offer fellow investors. The stock market is facing a series of macroeconomic headwinds right now, but in the long term, it should recover.
