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Dell Inc. (DELL), Netflix, Inc. (NFLX) & Herbalife Ltd. (HLF): How Carl Icahn Plans to Deliver Some Alpha

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Carl IcahnBillionaire Carl Icahn was at CNBC’s Delivering Alpha conference last week to tout his top ideas. Of course he had a few choice words about his latest activist campaign involving Dell Inc. (NASDAQ:DELL) . But he also reiterated his buy theses on his other favorite stocks, including Netflix, Inc. (NASDAQ:NFLX) and Herbalife Ltd. (NYSE:HLF).

Icahn had this to say about the Dell saga:  “I’ve been through a lot of these fights, but I’ve never seen anything like this.” He doesn’t care if founder Michael Dell ups his bid or not, he just wants to own the company. Icahn notes that he’s made the most money from companies he’s controlled.

Icahn also called out famed short-seller Jim Chanos. Chanos is short Hewlett-Packard Company (NYSE:HPQ) and believes Dell Inc. (NASDAQ:DELL) will be pulled down too due to a weakening PC market. Icahn says to check out some of the stocks that Chanos has shorted, as they have gone up.

One of Dell’s major problems is its over-dependence on the PC market. Although the company is making some serious efforts to restructure its business, nearly 70% of its business is linked to the PC market.

But the company is looking to decrease this dependence; included in this is the company’s focus on servers and consulting. These two segments only made up 16% and 15%, respectively, of fiscal 2013 revenue.

One bright spot is international growth. Dell Inc. (NASDAQ:DELL) generated approximately 40% of its 1Q revenue from overseas. Its key focus areas are Brazil, Russia, India and China. There is still, however, much uncertainty for the company. Michael Dell recently increased his offer to $13.75 per share to take the company private; yet, the stock is trading for less than $13.

Icahn is hoping to buy up the majority of the company and offer investors warrants so they can participate in future upside. I tend to agree with Icahn and am a fan of his proposed deal, but beware — there are risks if shareholders reject the Michael Dell deal and Icahn doesn’t have the funding to step in and support the company.

Streaming investment

Icahn credits his son, who manages one of the Icahn funds, for the Netflix, Inc. (NASDAQ:NFLX) investment. Since making the initial investment, Icahn hasn’t sold any of the shares of the streaming company. Revenue is expected to be up 18% in 2013 and another 20% n 2014.

However, the stock fell as much as 8% earlier this week on 2Q results. The company earned revenue of approximately $1.1 billion, inline with expectations, and EPS of $0.49 compared to expectations of $0.40. The bad news that investors appear to be focusing on includes lower-than-expected subscriber growth. The company added 630,000 subscribers during 2Q, which was below the 700,000 analysts had expected.

From a valuation standpoint, Netflix, Inc. (NASDAQ:NFLX) is still rich by various measures. The company trades at nearly 700 times earnings and almost 4 times sales. On an EV/EBITDA basis, the company trades above 100 times.

Battling billionaires

The heat surrounding the Herbalife Ltd. (NYSE:HLF) trade appears to be cooling. Billionaire Bill Ackman is on the short side of the stock, while Icahn is on the long side. The company has tried defending itself against concerns that it’s a “pyramid scheme,” and so far has managed to convince the majority of investors — the stock is up nearly 80% year-to-date.

Sales are expected to be up 13% in 2013, with more than 70% of sales from outside of the U.S.

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