Carl Icahn is one of the most successful investors on Wall Street, and he takes a value-investing approach similar to Berkshire Hathaway CEO Warren Buffett. However, Icahn differs from Buffett in that he takes an active role in turning around undervalued companies by shaking up management teams or implementing other changes he believes will turn around the business. He then sells his stake in those companies once the changes are implemented and their valuations improve. This differs from Buffett, who buys undervalued stocks with the intention of holding them indefinitely.
One of Icahn's recent successes includes eBay. In 2014, Icahn took a significant position in eBay, calling it one of the worst-run companies he'd ever seen. He urged the company to spin off PayPal, which it announced it would do in August 2014. Icahn exited eBay in 2015 and sold off his stake in PayPal in 2018.
Investors can catch a glimpse of what Carl Icahn's investing in based on his most recent Form 13F filing. In it, you can see that Icahn has 81% of his stake invested in two companies: Icahn Enterprises (IEP 0.06%) and CVR Energy (CVI -0.57%).
Icahn Enterprises makes up 70.6% of Icahn's portfolio
Unsurprisingly, over 70% of Carl Icahn's investments are in his master limited partnership (MLP), Icahn Enterprises. This diversified holding company owns subsidiaries in investments, energy, automotive, food packaging, and real estate.
Icahn does his activist investing through the investment segment. Here he looks to find undervalued companies and improve their valuations by cutting costs or making complementary acquisitions that could make the business more efficient. Investments in this segment are worth over $4.2 billion and include stakes in companies like FirstEnergy Corporation, Xerox, Herc Holdings, Newell Brands, and Southwest Gas. This segment hasn't performed well, losing $7.3 billion over the past nine years.
Data source: Icahn Enterprises 10-K filing. Chart by author.
Icahn Enterprises primarily earns its revenue from its energy and automotive segments. Last year, its energy segment accounted for over $10.8 billion, 77% of its total revenue. It was also one of the few segments that turned an operating profit during the year. This segment is engaged in refining petroleum and manufacturing nitrogen fertilizers through its subsidiary, CVR Energy. It took a controlling stake in CVR Energy in 2012 as part of its investment segment but has since created its energy-operating segment to account for these profits.
Another major revenue source is its automotive segment, which owns the Icahn Automotive Group as a subsidiary. It mainly earns money through its businesses across automobile maintenance, repair, parts, and accessories. Last year, this segment accounted for 17% of Icahn's total revenue.
An additional 10.3% of Icahn's investments are in CVR Energy
Besides being held by Icahn Enterprises, CVR Energy is also a part of Carl Icahn's portfolio. He owns over 10% of the energy company, with Icahn Enterprises owning another 71% of the stock. As noted above, it is engaged in refining petroleum, manufacturing fertilizers, and producing renewable diesel.
Last year, the energy company posted $963 million in operating income, up from $87 million the year before. It benefited from tight inventory levels and favorable refining margins. Its nitrogen fertilizer business got a big boost, with sales of $836 million, up 175% from the prior year. Here it benefited from high sales prices and lower fertilizer supply.
Should you follow Icahn's lead?
Icahn Enterprises is a huge part of Carl Icahn's portfolio, with investments across various industries. What makes this stock so appealing is its fat dividend yield of 15.89%. However, investors should remember that, even with its big dividend payout, Icahn Enterprises can be pretty volatile and has underperformed the S&P 500 over ten years, returning investors 159.5% vs. the S&P 500 return of 198.7%.
IEP Total Return Level data by YCharts.
CVR Energy had an outstanding year last year, benefiting from higher prices and lower inventory supply in the industry. However, investors shouldn't expect its incredible growth to continue. While geopolitical uncertainty will continue with the Ukraine and Russia conflict ongoing, nitrogen fertilizer prices have fallen, and refining margins are expected to come down too.
While Carl Icahn has had tremendous success turning companies around, his performance over time has been less consistent than that of someone like Warren Buffett, because he tends to sell his investments when they reach a certain valuation instead of holding them for the long haul. Given the lackluster performance in the investment segment of Icahn Enterprises, I wouldn't recommend following his lead. Instead, I like a more diversified company with robust cash flows like Berkshire Hathaway.
