Carl Icahn, the high-flying activist investor recognized globally, wields a Midas touch in the investing realm, transforming overlooked companies into golden geese through strategic interventions. With a staggering 57% of his investment mantle resting on a single stock – Icahn Enterprises (NASDAQ: IEP), Icahn Enterprises presents a tantalizing dividend yield crossing the 29% threshold. However, the stock has weathered a tumultuous storm in the past year, witnessing a debilitating 66% drop since May 2023.
The Icahn Touch: A Maverick Investment Strategy
Carl Icahn’s investment legacy is laden with triumphs. Embracing a value-oriented approach akin to the sage Warren Buffett of Berkshire Hathaway (NYSE: BRK.A)(NYSE: BRK.B), Icahn’s modus operandi diverges significantly from the Oracle of Omaha’s investment style.
While Buffett employs a hands-off ethos, entrusting management teams to steer the ships in Berkshire’s fleet with minimal interference, Icahn adopts an assertive stance, orchestrating management overhauls and enforcing strategic revamps to catalyze business turnarounds. Pioneering the activist investor archetype, his reputation as a “corporate raider” precedes him, exemplified by the landmark success of pushing for eBay’s spinoff of PayPal in 2014, which reaped bounteous returns in the post-spinoff era.
Deciphering the Business Fortunes of Icahn Enterprises
Icahn’s activist investing endeavors predominantly unfold within the investment ambit of Icahn Enterprises. Here, he scouts for undervalued gems, endeavoring to augment their valuations by shearing costs or orchestrating strategic acquisitions to enhance operational efficiency.
As of the previous year, investments in this segment tallied a worth of $3.2 billion, boasting an eclectic mix of long and short positions. Noteworthy holdings encompass Crown Holdings, Southwest Gas Holdings, Illumina, and Bausch Health Companies. However, the investment segment of Icahn Enterprises stumbled over the past half-decade, witnessing a gut-wrenching $2.3 billion in losses.
The investment distress stemmed partly from Icahn’s foray into short-selling ventures. Over recent years, he dabbled extensively in short positions, including credit default swaps (CDSs) wielded to short commercial mortgage-backed securities.
Vocalizing in a 2023 communiqué to unitholders, Icahn acknowledged, “straying over the past years from our activist ethos and shorting (hedging) excessively.” Pledging to realign with the activist stratagem, he asserted, “focusing on our activist blueprint while judiciously hedging going forward.”
Image source: Getty Images.
In tandem with investments, Icahn Enterprises exerts commanding control over numerous enterprises spanning the energy, automotive, food packaging, and real estate spheres. At the apex sits CVR Energy, a crown jewel in its portfolio, commanding 66% ownership of the company’s outstanding shares. Specializing in petroleum refining, marketing, and nitrogen fertilizer manufacturing, CVR Energy emerges as a standout performer in Icahn Enterprises’ portfolio over the epochs.
The Towering Shadow of Short-Selling on Icahn Enterprises Stock
Trading a descending trajectory through the annals of the past year, Icahn Enterprises grappled with a damning indictment from the renowned short-seller Hindenburg Research. Allegations hurled by Hindenburg contended that Icahn Enterprises’ net asset value stood erroneously inflated.
Mired in a pricing conundrum, Icahn Enterprises found itself perched at a 218% premium to its net asset value (NAV) at the time, primarily stemming from a flock of retail investors enticed by its generous dividend disbursal and the allure of backing the storied activist investor. Hindenburg lambasted the firm, asserting its inadequate cash flow reserves to buttress the distribution.
IEP Dividend data by YCharts
Navigating the Investment Conundrum with Icahn Enterprises
Despite the siren call of Icahn Enterprises’ luscious dividend yield, beckoning income-seeking investors to its fold, prudence dictates a cautious approach. Carl Icahn professes a reversion to the roots of activist investing, a move poised to revitalize the lackluster investment performance that has plagued the enterprise for a span of years.
However, grappling with a yawning rise in the debt-to-equity ratio throughout the preceding year and the dividend’s susceptibility to imminent slashes, caution should reign supreme in the decision-making realm. Thus, prudence prevails in steering clear of a stake in the stock today.
Should the allure of investing $1,000 in Icahn Enterprises beckon, the wise investor would ponder these pivotal considerations:
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Courtney Carlsen stands neutral with regards to the stocks discussed. The Motley Fool holds positions in and commends Berkshire Hathaway and PayPal. The Motley Fool extols Bausch Health Companies, Illumina, and eBay and advocates for options including short July 2024 $52.50 calls on eBay and short March 2024 $67.50 calls on PayPal. The Motley Fool honors a transparent disclosure policy.
Expressed herein are the author’s views and opinions, not necessarily reflective of those held by Nasdaq, Inc.
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