Every quarter, large investors in the U.S. have to disclose what stocks they own via 13F filings with the Securities and Exchange Commission. Astute investors can learn and profit from studying the stocks the greatest investors in the world are buying.
Carl Icahn is one of the most successful investors in the U.S., and he has been a well-known activist investor since 1980. His estimated net worth of $25 billion ranks him as the second-richest investor in the U.S., behind Warren Buffett's $74 billion and just in front of George Soros' $24 billion.
Icahn has explained his strategy as follows:
Across all of our businesses, our success is based on a simple formula: we seek to find undervalued companies in the Graham & Dodd tradition, a methodology for valuing stocks that primarily looks for deeply depressed prices. However, while the typical Graham & Dodd value investor purchases undervalued securities and waits for results, we often become actively involved in the companies we target. That activity may involve a broad range of approaches, from influencing the management of a target to take steps to improve shareholder value, to acquiring a controlling interest or outright ownership of the target company in order to implement changes that we believe are required to improve its business, and then operating and expanding that business. This activism has brought about very strong returns over the years.
Over the past 10 years, Icahn's investment funds have returned 273%, compared to the S&P 500's 73%. His publicly traded master limited partnership, Icahn Enterprise Partners (IEP -0.38%), has returned 1,674% since Jan. 1, 2000, versus the S&P 500's 82% return. Icahn's investment funds returned all outside capital in 2011. Icahn Enterprise Partners is now the only way to get access to Icahn's investment funds, though Icahn owns 88% of the MLP.
Icahn's long U.S. stock portfolio totaled $33.6 billion as of Sept. 30, 2014. Note that this only includes Icahn's long U.S. positions. A note in his MLP's filings reveals that Icahn's investment funds were only 4% net long. As of Sept. 30, 2014, his fund's long exposure was 134% long equity and 7% long credit. The fund's short exposure was 124% short equity and 13% short credit.
Carl Icahn's most recent moves
This past quarter Icahn made one large new purchase, was given shares in a spinoff, added to three of his positions, and sold 20% of one position.
Icahn's newest position is Hertz Global (HTZG.Q), which he first bought in the third quarter and subsequently enhanced so that he now holds a 10.8% stake in the car renter. Icahn purchased 49.3 million shares at an average price of $28.11 per share, making Hertz about a 3% position in his portfolio. The shares have been beaten down since the company fired its CEO and had to restate its financials dating back to 2011. The restatement is also freezing plans for Hertz to spin off its equipment rental business, which had boosted the stock last year. Like Icahn, Fool Special Situations Analyst Jim Royal sees opportunity in the stock.
Icahn's other new position is Seventy Seven Energy (NYSE: SSE), which was spun off from Chesapeake Energy (CHKA.Q) on June 30 of this year. For every 14 shares an investor owned of Chesapeake, the stockholder received one share of Seventy Seven Energy. As Icahn holds a 9% stake in Chesapeake Energy, he also holds a 9% stake in Seventy Seven Energy, though the latter's smaller size means it is only a 0.1% position in Icahn's portfolio. Seventy Seven Energy was Chesapeake's energy services segment, and Chesapeake still makes up 80% of the company's revenue. Given $1.5 billion in debt and a drop in oil prices that threatens to slow Chesapeake's drilling, Seventy Seven Energy stock has dropped 75% from its spinoff price.
Existing positions
Icahn bought 15 million shares of eBay (EBAY 0.55%), raising his stake by $1 billion to 3.5% of the company. eBay makes up roughly 8% of Icahn's portfolio. he first took a stake in the online auction house in the first quarter of this year and has been agitating for a breakup of eBay and PayPal. After spending months pushing back against Icahn, eBay in September decided to spin off PayPal.
Icahn also added 1.3 million shares of his MLP, Icahn Enterprise Partners. IEP makes up a third of Icahn's portfolio, and he has an 88% stake in the business.
Lastly, Icahn added 12 million shares of media company Gannett (GCI), raising his position to 6.6% of the business, though Gannett only makes up a little over 1% of his portfolio. Gannett owns newspapers, websites, and TV stations. Spinoffs are one of the common themes among Icahn's holdings: Gannett announced in August that it plans to split its broadcasting and publishing divisions at some point in 2015.
Learning from the greats
While some people blindly follow other investors' moves, it's good to remember that the greatest investors in the world also make mistakes. It's worth taking the time to study their positions and learn from them.
