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Carl Icahn: Better Investor Than Buffett?
Carl Icahn doesn’t get enough respect, which may explain why shares of his company are such a bargain.
It was May 2011, and Carl Icahn was speaking at an investment conference in Manhattan. He seemed an odd presence, well dressed but still somehow rumpled, his native Queens, N.Y., accent making him sound more like a garment-industry executive than a Princeton-educated mogul worth billions of dollars.
Icahn, well known in the world of finance as an "activist" investor but relatively unfamiliar to individuals, began by assailing corporate boards. Then it was on to his stock pick. "My favorite stock earned $2.68 a share in the first quarter and sells for $40," he said. "In 2007 it sold for $130. It has great management." He paused. "The management is me, and the stock is Icahn Enterprises."
Icahn had a good case then, and he may have an even better one now. Still selling at $40 in early December, Icahn Enterprises (symbol IEP) trades at a 17% discount to the firm's book value (assets minus liabilities) of $47.84 per share. By contrast, Berkshire Hathaway (BRK-B), which, like Icahn Enterprises, derives much of its value from the investing prowess of its boss (in Berkshire's case, Warren Buffett), sells at an 18% premium to its book value.
Inferiority complex At the investing conference, Icahn, who owns 93% of Icahn Enterprises, expressed bewilderment over the disparity. He wondered why his firm, which has holdings in nine industries, traded for less than its book value. "I don't understand why I don't get a premium and Warren Buffett does," he said. The subtext was, "I know you all love Buffett. But what am I, chopped liver?"See also:
All this may perplex Icahn, but it spells opportunity for investors. The opportunity is greater than suggested by Icahn Enterprises' 17% discount to book value. The hedge fund that I run owns the stock, which I think is worth at least $60 a share based on the earnings power of the company's assets and the investing talents of Icahn and his team.
Icahn, 76, is arguably one of the great value investors of all time, and by one key measure may be an even better investor than Buffett. From 1968 through 2011, Icahn compounded the initial $100,000 he invested in his Wall Street firm at a 31% annual rate. Over the same period, the book value of Buffett's Berkshire Hathaway grew 20% annualized. Granted, in neither case are those pure "investment" returns -- each man was running a business as well as buying and selling stocks -- but it's a meaningful comparison nonetheless. And Icahn's returns after Schedule 13D filings (required when a buyer owns 5% or more of a publicly traded company) are extraordinary: an annualized 26.1% through June 30, compared with 7.3% for Standard & Poor's 500-stock index, according to the 13D Monitor, a research service. This is a crucial number for investors because it means they can successfully piggyback on Icahn's investments. For example, on January 13, 2012, Icahn filed a 13D on CVR Energy, with the stock at $23. On November 30, 2012, it closed at $46....MORE
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