Carl Icahn is one of my favorite activist investors, and because he gets results well above the industry average, piggybacking his holdings is a lucrative offer for both individual and institutional investors. At Stockpickr.com we track
like a hawk, updating the portfolio every chance we can get.
As an activist investor, Icahn is not afraid to take large long-term positions in stocks that are both under-managed and undervalued. Icahn indirectly creates value for shareholders, something current management often cannot do for a number of reasons. Here is one of Icahn's most famous quotes that define his feelings regarding the job of CEO.
"The CEO is the fraternity brother type who is great to have a drink with. He's a survivor and maybe not all that smart, but he works his way up the ladder in the corporation. And if you're a survivor, you never have someone beneath you who's smarter than you. So you eventually work your way to CEO. You have someone a little dumber than you underneath, and eventually we'll have morons running everything ... which we're getting closer to."
Icahn has been in the news recently for his large stake in
( BEAS), which just received a hostile bid at $17 a share from
. Icahn has been calling on BEAS to put itself up for sale for some time now, and if investors bought on Icahn's recommendation, the trade would have netted a 45% return.
Icahn is also a major holder of
, which recently announced that it was looking to be bought. Icahn has been pushing for this behind closed doors, as he feels that Biogen is undervalued.
The Icahn effect has already been felt at both BEA Systems and Biogen. He came, he saw, and he conquered.
But what's Icahn's next move?
First, Icahn owns 45% of
American Railcar Industries
, which creates and develops hopper and tank railcars in North America. After taking a hard look at this company, I believe this is one of Icahn's most undervalued positions. At last check, Icahn owns over 6 million shares.
Rising oil prices, coupled with increased Chinese and Indian demand for global commodities, have created an environment where it is not surprising that major investors and hedge funds such as
are loading up on railroad stocks. Their thesis is simple: Higher demand for transportation of food and other commodities will increase earnings for these companies.
Icahn is indirectly playing this sector rotation by investing in American Railcar, which develops and fixes new and old railcars. Increased demand for railcars should turn into hefty profits for American Railcar.
With ARII today at $21, the market is severely discounting potential growth and earnings power from ARII. Trading at just 5 times cash flows, this stock is cheap. In August, ARII got killed by investors after second-quarter earnings ticked up by only a penny from a year earlier to 52 cents a share, or $11 million. Analysts polled by Thomson Financial were seeking 12 cents more per share.
While American Railcar did "miss" on what analysts were looking for, it did increase earnings. Sure, the stock should have sold off a bit, but not 20-plus points.
Icahn is going to call for American Railcar to put itself up for sale, or maybe more logically, use its massive amount of cash to buy back shares. I believe this is, at worst, a 3-points-down and, at best, a 15-points-up situation.
Another one of Icahn's picks is
. Near its 52-week low, CYBX develops medical devices that provide vagus (part of the spinal cord) nerve stimulation therapy for the treatment of epilepsy and other debilitating neurological diseases.
The system consists of implanting a generator that delivers an electrical signal to an implantable lead that is attached to the nerve. Now, I always hate to get technical with these stocks, as this tends to jade people's view (i.e., the more complex it sounds, the better the company might be); but clearly this is a huge market.
With about 0.6% of the Canadian population having epilepsy and 20 million Americans having had some form of an attack, CYBX could benefit.
"Despite our challenges with the (treatment-resistant depression) indication, U.S. epilepsy sales experienced some growth, and we continued to achieve double-digit growth in our international sales," said Dan Moore, president and chief executive officer. "We believe we will further increase sales of VNS Therapy for epilepsy patients, and our recent management changes are aimed at that objective."
I believe Icahn sees the long-term secular trend in medical device companies. Near its 52-week low, this Houston-based company could also be a great acquisition target.
Icahn also has a large stake in
Lincoln National Corp
( MOT) (where he is pushing for some serious changes).
To see the rest of Icahn's postions
At the time of publication, James Altucher and/or his fund had no positions in stocks mentioned, although positions may change at any time.
James Altucher is president of Stockpickr LLC, a wholly owned subsidiary of TheStreet.com and part of its network of Web properties, and a managing partner at Formula Capital, an alternative asset management firm that runs a fund of hedge funds. He is also a weekly columnist for
The Financial Times
and the author of
Trade Like a Hedge Fund
Trade Like Warren Buffett
. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Altucher appreciates your feedback;
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