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Carl Icahn and Richard Blum Disclose Their Latest Moves; Should You Follow Them?

With the third quarter having ended, hedge funds are disclosing their latest moves ahead of the next wave of 13F reports. Legendary corporate raider Carl Icahn cannot get enough of Cheniere Energy, Inc. (NYSEMKT:LNG) and has further increased his holding of the stock. As reported in a recent Form 4 filing with the Securities and Exchange Commission, Icahn has acquired a little over 1.5 million shares of Cheniere at an average price of $48.3 per unit. As a result, together with his fund, Icahn Capital LP, he now holds 28.5 million shares, which account for 12.07% of the company’s common stock, with the stake being activist by nature. In another filing, Blum Capital Partners has disclosed a reduction in its holding of Avid Technology, Inc. (NASDAQ:AVID) as Richard Blum is looking to limit exposure to the stock. The fund sold 271,667 shares, holding 6.85 million shares or 17.5% of the company’s stock after the transaction.

Carl Icahn - Icahn Capital Lp

A hedge fund legend that is always on the radar of investors, Carl Icahn has recently released a video in which he explains his growing concerns over the recent global economic trends and the stock markets. Icahn is unhappy with the politics in Washington D.C. and the “boardrooms of Corporate America”, slamming the US tax code that makes it unattractive for American companies to repatriate funds earned abroad. He is also troubled by the effects of low interest rates on the spending patterns of US companies. Rather than spend money on core business, companies tend to direct cash towards share buyback programs and takeovers, while hiding associated costs in their quarterly reports. As a result, earnings are artificially inflated, prompting the stock price to increase for the wrong reasons. Carl Icahn believes an asset bubble is inevitable in the current environment.

Carl Icahn
Carl Icahn
Icahn Capital LP

Hedge funds and other big money managers like Icahn tend to have the largest amounts of their capital invested in large and mega-cap stocks like Apple Inc. (NASDAQ:AAPL) because these companies allow for much greater capital allocation. That’s why, if we take a look at the most popular stocks among funds, we won’t find any mid- or small-cap stocks there. However, our backtests of hedge funds’ equity portfolios between 1999 and 2012 revealed that the 50 most popular stocks among hedge funds underperformed the market by seven basis points per month, showing that their most popular picks and the ones that received the bulk of their capital were not actually their best picks. On the other hand, their top small-cap picks performed considerably better, outperforming the market by 95 basis points per month. This was confirmed through backtesting and in forward tests of our small-cap strategy since August 2012. The strategy, which involves imitating the 15 most popular small-cap picks among hedge funds has provided gains of more than 118%, beating the broader market by over 60 percentage points through the end of April (see more details).

With an equity portfolio worth more than $31 billion, Carl Icahn is mainly exposed to his own company, Icahn Enterprises LP (NASDAQ:IEP), 112 million shares, up 4% during the second quarter, which account for roughly a third of the portfolio. Icahn has not made any adjustments to the remaining of hos top 10 holdings, which include Apple Inc. (NASDAQ:AAPL) and eBay Inc (NASDAQ:EBAY), with Icahn Capital holding 52.7 million shares of Apple and 46.2 million shares of eBay.

Follow Cheniere Energy Inc. (NYSEMKT:LNG)
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An energy company engaged in the liquefied natural gas business, Cheniere Energy, Inc. (NYSEMKT:LNG) has a market cap of $11.41 billion and does not pay a dividend. The company posted revenues of $68 million for the three months ending June 30, registering a 0.5% increase year-over-year. The loss per share has also narrowed to $0.50 per share, from the $0.57 per share reported for the 2014 second quarter. With the company in expansion mode, analysts expect third quarter revenues to come in at $68.55 million and the loss to contract to $0.48 per share.

During the second quarter, the number of hedge fund holding long positions in Cheniere Energy, Inc. (NYSEMKT:LNG) decreased to 76, from 81, with the total value of their holdings falling by 7.65% to a little over $9 billion. Still, hedge fund managers have control over 54.9% of the company’s common stock. While managers like Seth Klarman and Zach Schreiber have increased their stakes in the company to 15.3 million shares and 9.86 million shares, respectively, short-selling expert Jim Chanos has branded the company a “looming disaster” and has wagered a significant short bet. He expects the recent crash in commodity prices to continue, thus having a major impact on the bottom line of Cheniere Energy.

Blum Capital was founded in 1975 by Richard Blum following a successful stint at Sutro & Co, an investment brokerage firm. Apart from investing in publicly traded companies, Blum also focuses on leveraged buyout and growth capital, and has more than $4.5 billion in assets under management. With an estimated value of $412 million at the end of June, the equity portfolio of Blum Capital is rather small, containing just three stocks. CBRE Group Inc (NYSE:CBG) is Richard Blum’s largest equity position, with the fund reportedly holding 8.27 million shares, down by 27% during the second quarter. Blum has also reduced his stake in Career Education Corp. (NASDAQ:CECO) by 28% to 3.32 million shares, according to Blum Capital’s latest 13F filing. During the second quarter, Blum has also liquidated his investments in ITT Educational Services, Inc. (NYSE:ESI) and Moneygram International Inc (NASDAQ:MGI).

Richard Blum
Richard Blum
Blum Capital Partners

Avid Technology, Inc. (NASDAQ:AVID) has been a poor performer so far this year, currently trading at $7.68 per share, down by 46% year-to-date. At a Price to Earnings (P/E) ratio of 61.xx, the stock is not severely overpriced in comparison with its peers, as the industry average stands at 57.90. For the 2015 second quarter, Avid Technology posted revenues of $109 million, down by 11.9% year-over-year, and a loss of $0.09 per share. Wall Street expects the company to bounce back to profitability and have estimated revenues of $137 million and earnings of $0.50 per share for the current quarter.

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J. Carlo Cannell is very optimistic about the prospects of Avid Technology, Inc. (NASDAQ:AVID) having more than doubled his investment in the company during the second quarter. His fund, Cannell Capital, has reported ownership of 806,234 shares in its latest 13F filing. Chuck Royce, on the other hand, decided to reduce his stake, dumping 18% of his holding by the end of June, leaving his fund, Royce & Associates, with 1.75 million shares. In general, hedge funds have reduced their interest in Avid Technology during the second quarter, with the number of funds invested in the company falling to 19 from 21. Nevertheless, hedge funds control roughly one third of the company’s common stock, their combined positions carrying an estimated value of $174 million, down by 18.8% over the quarter.

Disclosure: none.

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