Although we don't believe in timing the market or panicking over daily movements, we do like to keep an eye on market changes -- just in case they're material to our investing thesis.
Stocks broke a four-day losing streak on Monday, as the S&P 500 rose 0.6%, while the narrower Dow Jones Industrial Average (INDEX: ^DJI) gained 0.8%.
Let's start with Herbalife, where Icahn is the largest shareholder with a 16.8% stake, according to data compiled by Bloomberg. The nutritional supplement supplier, which has been assailed by another hedge fund manager, Bill Ackman, as a pyramid scheme, announced today that PricewaterhouseCoopers found no material changes in a reaudit of financial statements for the years 2010, 2011 and 2012, and the first three quarters of 2013 (the previous auditor, KPMG, resigned due to its own insider trading scandal). Herbalife is now current with its filings with the SEC.
The stock market cheered the news, sending the shares up 9.4% -- the stock is now up 133% year to date. No wonder Icahn said he we was "certainly happy" about the news; he's made out like a bandit the stock. However, he believes it's "still undervalued," telling CNBC today:
It's not a secret that their earnings have been increasing at about a 10% clip and if you look at multiples today of the S&P  -- it's sort of a no-brainer. The S&P have multiple of 16 times earnings; well, this company, I think – I haven't done the numbers recently – [is trading at] maybe 10 times earnings. Why should this company that's making a 10% increase not be going at 20 times earnings?
Note: Based on today's closing price, Herbalife shares are valued at 13.6 times next 12 months' earnings-per-share estimate.
The successful reaudit was a condition Herbalife executives cited in October for assessing a share repurchase program for 2014 – an idea Icahn supports, stating "I'm a big fan of buybacks on companies that I think are cheap – it's good for shareholders when you do buybacks." Given today's price action, it appears he isn't alone.
Twitter shares: too #expensive
Now, let's get to Twitter. There was a rumor last week that Icahn was buying shares of the microblogging company, which was plainly absurd. As I wrote last Tuesday, in 3 False Reasons Twitter is Trending:
Icahn didn't become the second richest investor in the U.S. (behind Warren Buffett) by buying stocks that are almost certainly overpriced. Apple at an enterprise value of 2.6 times the next 12 months' revenue estimate, yes. Twitter at 29 times – certainly not.
This was confirmed today by Fox Business News' Charlie Gasparino:
He is not an investor in the shares of Twitter. He likes the company, he uses, obviously, the service – and he's using it very well – but from what we understand, people close to the matter tell the Fox Business Network that Carl Icahn is not in the stock. The bottom line is: while he likes a lot about Twitter, he thinks it's too expensive.
Twitter is a higher-quality business than Herbalife, but the wrong price can turn a great business into a horrible investment. When Carl Icahn buys a stock (or anything else, I suspect), he wants value for his money; Twitter doesn't meet that standard.
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