Billionaire Carl Icahn’s Favorite Energy Stocks

Given his many decades of experience and tens of billions in net worth, Carl Icahn of Icahn Capital certainly knows how to invest. Over his storied career, Icahn has struck fear in both intransigent corporate management and competing corporate activists. In the process, Icahn has also won the hearts of many investors by unlocking value in many companies both in the short- and long-term.

In this article, we’ll put the microscope on some of Icahn’s favorite energy stocks, which include Cheniere Energy, Inc. (NYSEMKT:LNG), Freeport-McMoRan Inc (NYSE:FCX), CVR Energy, Inc. (NYSE:CVI), Chesapeake Energy Corporation (NYSE:CHK), and Transocean LTD (NYSE:RIG) and see how other hedge funds were positioned in them at the end of the second quarter.

While there are many metrics that investors can assess in the investment process, the hedge fund sentiment is something that is often overlooked. However, hedge funds and other institutional investors allocate significant resources while making their bets and their long-term focus makes them the perfect investors to emulate. This is supported by our research, which determined that following the small-cap stocks that hedge funds are collectively bullish on can help a smaller investor to beat the S&P 500 by around 95 basis points per month (see the details here).

#5 Transocean LTD (NYSE:RIG)

– Shares Held (as of June 30): 21.48 million
– Total Value (as of June 30): $255.37 million

Despite the fact that many in the industry expect utilization rates to bottom out by the middle of next year, Transocean LTD (NYSE:RIG) has retraced from its highs in early March. From March 31 through June 30, Icahn’s holding in the offshore driller remained unchanged at 21.48 million shares. Although there seems to be sharp resistance at $50 per barrel for WTI, Icahn seems confident in the value/optionality that Transocean offers. As Transocean has one of the stronger balance sheets in the sector, many traders think the company can survive until a time when crude prices go higher than $50 and offshore activity increases again.

#4 Chesapeake Energy Corporation (NYSE:CHK)

– Shares Held (as of June 30): 73.05 million
– Total Value (as of June 30): $312.65 million

Like Transocean, Carl Icahn kept his stake in Chesapeake Energy Corporation (NYSE:CHK) unchanged during the second quarter at 73.05 million shares. Since WTI bottomed out in February, Chesapeake has been one of the hottest stocks on the market, rallying from under $2 per share to around $7.35 per share (shares of the company are up by over 63% year-to-date due to the surge). Driving the bullishness is the belief that Chesapeake’s liquidity troubles are more and more in the rear-view mirror and that natural gas/WTI fundamentals are slowly but surely improving. Also lending a helping hand have been better-than-expected asset sales and falling well costs.

We’ll power through Icahn’s three favorite energy stocks on the next page.

#3 CVR Energy, Inc. (NYSE:CVI)

– Shares Held (as of June 30): 71.2 million
– Total Value (as of June 30): $1.1 billion

Like the two stocks mentioned before, Icahn lived up to his long-term investor persona and maintained his stake of 71.2 million shares in CVR Energy, Inc. (NYSE:CVI) despite the stock’s weak price action. Due to the previously mentioned narrowing of the crack spread, shares of CVR have steadily retreated since the beginning of 2016 and are now down by 56% year-to-date. Analysts at Goldman Sachs think the pain might soon be over, however, as they recently upgraded the stock to ‘Neutral’ from ‘Sell’ and set a $15 price target on it, though the stock has quickly eclipsed that mark, gaining 11% in the last three trading sessions. If the spread between inputs and products widens enough, CVR could do well.

#2 Freeport-McMoRan Inc (NYSE:FCX)

– Shares Held (as of June 30): 104 million
– Total Value (as of June 30): $1.16 billion

Although various analysts and many shareholders didn’t like the fact that Freeport-McMoRan Inc (NYSE:FCX) recently sold its offshore Gulf of Mexico assets to Anadarko Petroleum Corporation (NYSE:APC) for $2 billion, Icahn was a fan of the deal, saying:

“Yesterday’s announcement demonstrates the Company is making good on its stated goal of deleveraging and is on track to cut its net debt by half, from year end 2015 through the end of next year, at current copper prices. I applaud management and the whole Board of Directors for all steps taken in this regard… I completely endorse CEO Richard Adkerson’s recent comments that Freeport is “…open for all strategic moves, whether that means selling assets, [or] selling the company” to create value for all shareholders.”

Although Freeport-McMoRan could have potentially gotten more from the sale if it had waited and crude prices rose, Icahn is of the firm belief that deleveraging and focusing on the company’s core is the better choice for now. Icahn’s fund owned 104 million shares of the copper and energy company at the end of June.

#1 Cheniere Energy, Inc. (NYSEMKT:LNG)

– Shares Held (as of June 30): 32.68 million
– Total Value (as of June 30): $1.23 billion

While the near- and medium-term prospects for the LNG sector are muddy at best, Icahn maintained his stake of 32.68 million shares of Cheniere Energy, Inc. (NYSEMKT:LNG) during the second quarter, which was worth over $1.2 billion and accounted for 6.05% of the activist’s equity portfolio at the end of June. Like Icahn, many smart money funds also chose to stay put with their Cheniere stakes during the quarter. Of the 749 hedge funds that we track which filed 13Fs for the June quarter, 42 were long $4.51 billion worth of Cheniere Energy, Inc. (NYSEMKT:LNG) shares on June 30, which accounted for a gargantuan 51.00% of the float, making it one of the stocks hedge funds are most overweight. If LNG demand in Asia accelerates faster than expected, Cheniere will do well.

Disclosure: None