Carl Icahn is a legendary activist investor, there’s no doubting it. When Icahn announces an investment in a firm he is joined by hoards of followers, and even manages to scare a few board members along his way. Over time, Icahn has made quite a pretty penny with his investments in Motorola Solutions Inc (NYSE:MSI) and KT&G Corp. It’s too late to go buying Motorola stock and play along with him, but there are some more recent investments that you could join him in.
Herbalife Ltd. (NYSE:HLF)
We might as well get this started with Herbalife, a very controversial stock as of late. The company has been called a “pyramid scheme” by another prominent investor, Bill Ackman. After Ackman made public his short position in the company its stock began to tank, taking it from around $42 per share all the way down to $24 and change. Since then, the company has revitalized and defended itself and is back up to pre-short levels. Is it worth getting into now, though, like Carl Icahn has just done?
First thing to do is explore what exactly the company does. Herbalife is essentially a product marketing company. They take nutritional supplements and personal care products and sell them through affiliates. The reason that Ackman called it a pyramid scheme is that he believed it suckered people into signing up and buying large quantities, and these people could then get others to sign up to make more money. When I went through Ackman’s presentation I could really see where he was coming from in his argument.
So if Ackman thinks it’s so bad it deserves to go bust, what could Carl Icahn see in it? Definitely potential after the big drop, especially if Ackman turns out to be wrong. Icahn bought up 8% of the company and he’s sitting on it as we speak. Can you get in on the company now? Or had the ship sailed before Icahn announced his position?
Herbalife has a current P/E ratio of 11.64, significantly below the S&P's average ratio. The company also pays a dividend, which yields 2.7% at current pricing. Earnings, the thing that keeps our stock ticking up, are also on the rise at Herbalife; revenue has seen 12.19% growth annualized over five years, while EPS growth at the company has also been shooting up at a five year annualized 23.85%. For those interested in the dividend, that keeps going up as well--the dividend at Herbalife has grown at an annualized rate of 26.82% over the last five years!
So, what’s going on with Icahn and Netflix? Well, like many companies he has tried to buy and change in the past, Icahn is doing the same here. Netflix even decided to implement a poison pill mechanism to keep any Icahn antics at bay for the foreseeable future.
Icahn made a great buy on Netflix. He has likely made 30% or more on his investment, as the stock is up around 50% over the last three months. His original goal was to get the firm to sell itself, but it would seem that the board of Netflix are totally against the idea. Icahn may instead choose to dump his position in this company, at the aforementioned profit, and continue on to greener pastures.