In August, billionaire activist investor Carl Icahn’s Icahn Capital filed its 13F for the second quarter of 2013 with the SEC. Many of the fund’s moves weren’t exactly news; because Icahn tends to take large positions, even in large-cap stocks, he is often forced to file 13Ds shortly after taking a position. Still, it can be useful to track what he has been doing over time. Insider Monkey follows quarterly 13Fs from hundreds of hedge funds and other notable investors, using the results to help us develop investment strategies; according to our research, the most popular small cap stocks among hedge funds achieve an average excess return of 18 percentage points per year (learn more about our small cap strategy). Our own portfolio based on this strategy outperformed the S&P 500 by 33 percentage points in the last 11 months. Using our database of Icahn’s filings over time (see a history of Icahn’s stock picks), here are three things we noticed in his most recent 13F for the end of June:
Nuance (and now Apple?). Icahn had initiated a position of 3.8 million shares in Nuance Communications Inc. (NASDAQ:NUAN) between January and March, and then last quarter he increased his holdings in the company to about 32 million shares. Nuance is a $6 billion market cap voice and language solutions company perhaps best known as providing critical technology for Apple Inc. (NASDAQ:AAPL)’s Siri service. As such the company is seen as a way to play demand for Apple products- and its stock price is down 19% in the last year as volume has been lower than expected. Wall Street analysts project $1.42 in earnings per share for the forward fiscal year, making for a P/E multiple of 13.
While it doesn’t show up in the filing, within the past couple of weeks Icahn has indicated that he has been buying shares of Apple itself and having conversations with CEO Tim Cook. One possibility is that he wants Apple to be more aggressive in returning cash to shareholders, and believes that he can succeed where fellow billionaire David Einhorn of Greenlight Capital failed in doing so earlier this year. Of course, we’re sure Icahn wouldn’t mind if Apple used some of its cash to acquire Nuance Communications Inc. (NASDAQ:NUAN) instead. With a number of hedge funds selling Apple Inc. (NASDAQ:AAPL) in the second quarter, it fell to the #3 slot in our ranking of the most popular stocks among hedge funds (check out the full top ten list). It trades at 12 times earnings, whether we consider trailing results or forward consensus, and much of its market cap is cash and marketable securities.
Dell. The billionaire activist had also started buying Dell Inc. (NASDAQ:DELL) earlier this year, and by the end of June had increased his holdings to about 150 million shares as part of his campaign to prevent founder Michael Dell and his financial backers from taking the company private. While Icahn was able to extract a somewhat better deal from the buyers, this higher price came in exchange for revisions to the company’s voting procedures which make the deal much more likely to be approved. Icahn, still believing the deal is not good enough, will now challenge the current Board of Directors in court.
Still loves troubled energy companies. Icahn added slightly to his position in contract offshore driller Transocean LTD (NYSE:RIG) and maintained natural gas company Chesapeake Energy Corporation (NYSE:CHK) as another of his top picks with about 60 million shares of stock. He had first bought Chesapeake after the company encountered management and liquidity problems last year. The natural gas market remains weak, but production is still profitable and so higher sales have driven strong increases in operating income so far this year. Chesapeake Energy Corporation (NYSE:CHK)’s forward P/E is 12. Transocean LTD (NYSE:RIG) increased its quarterly dividend as part of its strategy to fend off Icahn’s activism, and now pays a yield of 4.7%. With analysts bullish on offshore drilling, it is valued at only 8 times forward earnings estimates and a five-year PEG ratio well below 1.
Even with these companies’ troubles we think that further research on Chesapeake and Transocean is warranted, with income investors in particular likely wanting to look at the offshore driller. Icahn’s new position in Apple is quite interesting, particularly combined with the increase in his Nuance Communications Inc. (NASDAQ:NUAN) stake, but just in case he is going to push for an acquisition of Nuance we would hesitate to use this as a buying signal.
Disclosure: I own no shares of any stocks mentioned in this article.