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What's Behind Carl Icahn's Headlines

When people think of Carl Icahn, they think: corporate raider, activist investor, hostile takeovers, proxy fights. The past year has seen headlines with Carl Icahn in battles with the boards and managements of Blockbuster (BBI), Hollywood Entertainment (HLYW) and Kerr-McGee (KMG).

But a recent 13F filing on Friday cast some light on his other, more passive holdings. It's interesting to see which companies he buys up where he's not an activist. Certainly the management teams of these companies have to wonder what he's up to, even if he hasn't said a word about his investments. Is he planting the seeds for his future takeover attempts? Is he going to wage a proxy fight and try to take over the board?

What's interesting to me in a look at the broader scope of Icahn's picks is that it reads like a who's who of stocks that were in the news over the past year. While some investors like to find stocks that are out of the mainstream and maybe represent pockets of hidden value (Buffett is usually thought of in this category), Icahn seems to dive right into the headlines. It's almost like a magic trick. While companies get in the news through the firing and hiring of CEOs, Icahn tries to figure out what's going on with the hand hidden behind the back, where the profits are being generated.

First off is Time Warner (TWX), which is one of my favorite companies, and which has received sparse coverage thus far.

Icahn owns 5 million shares, valued at about $88 million. Shares closed at $16.96 a share, and Time Warner is priced almost exactly where it was at the market bottom in July 2002, despite a complete management shakeup (including a renaming), and a successful restructuring of the cable and music lines.

The stock has suffered from guilt by association with AOL, and the dot-com bubble/burst had its effect on the stock, as evidenced by the chart below, which shows Time Warner's comparably lagging performance over the past five years vs. several of its media peers: News Corp. (NWS), Viacom (VIA.B) and even troubled Disney (DIS).

Lagging Its Peers
Dogged by AOL, Time Warner's five-year chart appreciably lags three peers.
Source: Formula Capital, James Altucher

The company has also steadily increased cash flow and paid down debt, but investors still don't trust it. Perhaps Icahn sees value here that will be awakened without his efforts, or perhaps he sees an opportunity to nudge things along if he feels a breakup would unlock more value for shareholders.

I was surprised to see Icahn owning 4.5 million shares of Siebel Systems (SEBL), valued at about $41 million, because I don't really think of him as a tech guy. However, Seibel has definitely had trouble unlocking its potential -- with three CEOs in the past 12 months -- despite a war chest of $2.2 billion in cash, $280 million in cash flows and zero debt, on top of a $5 billion market cap.

The software industry is consolidating at a rapid place, and even private equity firms are getting involved, so Icahn is probably making a bet that Siebel is soon to be consolidated. And at the very least, there is the $2 billion cash safety cushion to keep things afloat while he waits. Another technology stock he bet on was Hewlett-Packard (HWQ).

Icahn has also made a bet on the energy industry, not only with Kerr-McGee but with holdings in Pogo Producing (PPP), Noble Energy (NBL) and Pioneer Natural Resources (PXD).

For more on his picks, you can check out the SEC archives.

James Altucher is a managing partner at Formula Capital, an alternative asset management firm that runs several quantitative-based hedge funds as well as a fund of hedge funds. He is also the author of Trade Like a Hedge Fund and Trade Like Warren Buffett. At the time of publication, neither Altucher nor his fund had a position in any of the securities mentioned in this column, although positions may change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Altucher appreciates your feedback; click here to send him an email.

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