Wealthy Investor Carl Icahn Places $6.3 Billion Wager on Single Stock

Wealthy Investor Carl Icahn Places .3 Billion Wager on Single Stock

Carl Icahn is one of the most famous investors in history. Throughout the 1980s and 1990s, he became known as a corporate raider, buying large stakes in companies to try to force change. Over the decades, he amassed a fortune worth billions of dollars.

Icahn has never shied away from making big bets. Currently, almost his entire fortune – some $6.3 billion – is tied up in a single stock. The shares are currently valued at all-time lows, perhaps making it a lucrative way to bet alongside a legendary billionaire investor.

Billionaire Carl Icahn bets on himself

It’s no surprise that Carl Icahn has the majority of his money tied up in a company that bears his name: Icahn Enterprises (NASDAQ:IEP). Incorporated in 1987, Carl Icahn has long used Icahn Enterprises as its primary investment vehicle. He currently owns more than 80% of the company, a stake worth approximately $6.3 billion. Essentially, Carl Icahn completely controls Icahn Enterprises, and the company’s stock price is a direct result of his long-term decision-making abilities.

Icahn Enterprises is a conglomerate company. This means that it is a conglomeration of disparate companies, most of which have nothing to do with each other. As of last quarter, the net asset value of these companies was approximately $4.8 billion. Part of this net asset value is made up of various real estate assets, as well as a handful of industrial and automotive companies. However, about two-thirds of the value is tied to just two things: a stake in CVR Energy, an oil refiner, and a stake in Carl Icahn’s investment funds, which operate separately from the company. Thus, even if Carl Icahn has somewhat diversified his activities, they depend heavily on the performance of CVR Energy and its investment funds.

Carl Icahn is probably well aware that Icahn Enterprises has concentrated its bets. These bets appear to represent the two areas in which he has the strongest conviction. With a long-term track record of producing multi-billion dollar fortunes, investors can instantly bet alongside Carl Icahn simply by purchasing shares of Icahn Enterprises.

A problem that doesn’t make much sense

It’s a reasonable strategy to invest alongside legendary billionaire investors. Just look Berkshire Hathaway. Patient investors who trusted Warren Buffett have generated double-digit compound annual returns for decades. But Icahn Enterprises is not Berkshire Hathaway. Not even close. Since 1998, Berkshire Hathaway’s stock has increased in value by more than 1,000%. Icahn Enterprises stock, meanwhile, added just 69% in value. The company has, however, consistently paid large dividends. These dividends narrow the gap significantly, with Icahn Enterprises delivering a 630% stake. total return over this period. But there’s no denying that Berkshire Hathaway has proven to be a superior long-term investment with much less volatility. Additionally, if you had reinvested your Icahn Enterprises dividends in Icahn Enterprises stock, your total returns would have been much lower than 630%.

Wealthy Investor Carl Icahn Places .3 Billion Wager on Single Stock

BRK.B Chart

Why, then, does Icahn Enterprises stock appear to be trading at a premium to Berkshire Hathaway? On a price upon reservation On a basis — a very simple measure that assesses how much the market is willing to pay for a company’s assets — Icahn Enterprises currently trades at 2.3 times its book value. Berkshire, meanwhile, trades at just 1.6 times its book value. There’s even reason to believe that Berkshire’s price-to-book multiple is overinflated, given that the company has repurchased tens of billions of dollars worth of stock over the years. These buybacks created a lot of value for shareholders, but due to accounting rules, they removed the true book value of the company. Icahn Enterprises, meanwhile, has been issuing new shares relentlessly. Over the past five years, its share count has exploded 112%.

BRK.B Stock Outstanding ChartBRK.B Stock Outstanding Chart

BRK.B Stock Outstanding Chart

It’s hard to justify buying Icahn Enterprises over Berkshire Hathaway, especially given the premium valuation. Looking at Icahn Enterprises’ business portfolio, it’s hard to argue that anything should be valued above its book value. The value of the company’s stake in Carl Icahn’s investment funds, for example, has fallen from $4.2 billion last year to just $3.2 billion today. Its stake in CVR Energy, which should be valued close to its book value since it is a publicly traded asset, fell from $2.2 billion to just $2 billion over the course of the same period. The rest of Icahn Enterprises’ assets aren’t faring much better. For example, one of its automotive activities went bankrupt last summer.

Carl Icahn is betting huge amounts of money on Icahn Enterprises, but that’s probably because he has to. The company’s value would likely collapse if he suddenly tried to sell all his shares. Given that the stock trades at an inexplicable premium to Warren Buffett’s Berkshire Hathaway, investors are probably better off betting with this billionaire than with this one.

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Ryan Vanzo has no position in any of the stocks mentioned. The Motley Fool ranks and recommends Berkshire Hathaway. The Mad Motley has a disclosure policy.

Billionaire investor Carl Icahn bets $6.3 billion on this 1 stock was originally published by The Motley Fool

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