Erstwhile corporate raider and revered activist investor Carl Icahn has been in the news quite a bit over the past few days following fellow billionaire Donald Trump being elected to the office of President. The octogenarian financier has been one of the loudest supporters of Mr. Trump on the Street since the latter launched his campaign. With Mr. Trump getting elected, not only was it a win for Mr. Icahn on the political front, but also on the financial front. Based on his recent disclosures, Mr. Icahn is estimated to have netted a whopping $700 million just on the day that Mr. Trump was announced as the next President. Moreover, according to Fortune, Mr. Icahn also used the opportunity that the markets presented after Mr. Trump’s victory to bet around $1 billion on U.S. equities right after the results were announced, leaving the Trump victory party to make his wagers. Recently, while speaking at the Reuters Global Investment Outlook Summit, Mr. Icahn said that the rally in the U.S markets since Mr. Trump was elected might be overdone in the short-term, but he is bullish on the economy going forward.
While we might not know what Mr. Icahn’s hedge fund Icahn Capital LP bought on results day, we do know what the fund was betting on at the end of the third quarter in anticipation of Mr. Trump’s win. According to Icahn Capital’s recently submitted 13F filing, the fund had long positions in 19 U.S. stocks at the end of September, which in aggregate were worth $19.80 billion at that time. The filing also revealed that Mr. Icahn was unloading energy stocks and betting big on a handful of stocks going into the fourth quarter, as his top-10 stock picks alone amassed over 90% of the value of his portfolio at the end of September. Without further ado, we will now take a look at the five major moves made by Icahn Capital in the third quarter and will discuss how those stocks have performed recently.
– Related Reading: The 15 Most Famous Carl Icahn Quotes
At Insider Monkey, we track around 750 hedge funds and institutional investors. Through extensive backtests, we have determined that imitating some of the stocks that these investors are collectively bullish on can help retail investors generate double digits of alpha per year. The key is to focus on the small-cap picks of these funds, which are usually less followed by the broader market and allow for larger price inefficiencies (see more details about our small-cap strategy).
Chesapeake Energy Corporation (NYSE:CHK)
Chesapeake Energy Corporation (NYSE:CHK) was a part of Icahn Capital’s equity portfolio from the second quarter of 2012, when the stock still used to trade around the $15 level. After oil prices started declining in mid-2014, Chesapeake Energy Corporation (NYSE:CHK)’s stock began a long downward journey that ended when it hit a low of $1.50 earlier this year. From that low, the stock recovered quickly and broke above the $8 level during the third quarter, which gave Icahn Capital an opportunity to sell its entire remaining stake in the company. Chesapeake recently reported strong numbers for its third quarter, following which SunTrust Robinson Humphrey’s analyst Neal Dingmann released a note in which he reiterated his ‘Buy’ rating and $11 price target on the stock. In his note, Mr. Dingmann wrote that although Chesapeake Energy’s leverage is still higher than its peers and SunTrust forecasts $300 million in cash outflow spend next year, continued operational efficiencies and lower wells costs should further boost the company’s returns and will likely push it to become cash flow positive in 2018.
Allergan plc Ordinary Shares (NYSE:AGN)
– Shares Held By Icahn Capital LP (as of September 30): 425,438
– Value of the Holding (as of September 30): $97.98 Million
Having initiated its stake in Allergan plc Ordinary Shares (NYSE:AGN) during the second quarter, Icahn Capital proceeded to reduce it by 87% during the third quarter. Allergan plc Ordinary Shares (NYSE:AGN)’s stock has tanked by almost 15% in the current quarter and looking at that performance, one can say that the fund made an extremely wise move by substantially reducing its stake ahead of the quarter. 2016 is proving to be quite a dismal year for Allergan, as its mega merger with Pfizer was called off in April and the company has failed to beat the Street’s revenue estimates for the past three quarters. All of these developments have taken a heavy toll on the pharma giant’s market cap, which has eroded by one-third so far this year. On November 3, analysts at RBC Capital Markets reiterated their ‘Outperform’ rating on the stock, but lowered their price target on it to $279 from $300.
We’ll check out three more of Icahn’s stock picks on the next page.