The wrenching volatility in equity markets has certainly not scared off billionaire investor Carl Icahn. If anything, the environment has been a big opportunity to pick up some good values. To this end, he has made aggressive investments in companies like Clorox (NYSE:CLX) and Oshkosh (NYSE:OSK).
But now Carl is going dot-com — he disclosed an 8% stake in medical web site WebMD (Nasdaq:WBMD). Often, Icahn takes an activist approach with his investments, trying to get management to restructure operations or sell out. However, in the case of WebMD, it looks like he is mostly interested in the long-term potential of the company. But Icahn’s federal filing did indicate that there may be some “conversations” with management from time to time. He’s never been shy.
Why the attraction to WebMD? In terms of the consumer healthcare market, the company is the clear leader. Besides its flagship Webmd.com site, the company also has properties like MedicineNet, eMedicineHealth and RxList. Overall traffic comes to about 100 million visitors a month and 2.2 billion page views.
But WebMD also has strong positions in other segments. One is for the professional market, which is called Medscape, which has 2.5 million physician visits a month.
WebMD’s business model is to attract advertising dollars, and the good news is that the secular trends look bright. Of the $30 billion spent on promoting and marketing in the U.S. medical market, less than 5% of that is online. It seems inevitable that this percentage will continue to increase. In fact, a big driver is the large number of drugs that will go lose patent protection during the next few years. Pharmaceutical companies will have to get more aggressive with their marketing.
Despite all this, shares of WebMD have lagged this year. Since early May, the stock price has fallen to $36 from $58. The main problem has been delays in ad buys from customers. Part of this has been from the slow economy, but pharmaceutical companies also have had to deal with longer regulatory reviews.
However, for an investor looking for a growth play on healthcare, WebMD does look like a good option. What’s more, the valuation is affordable, with a price-to-earnings ratio of 22. WebMD has also been aggressively buying back its shares.
Icahn may not need to get aggressive with management. He may be able to just wait until the market realizes the long-term value of WebMD.
Tom Taulli runs the InvestorPlace blog “IPO Playbook,” a site dedicated to the hottest news and rumors about initial public offerings. He is also the author of “All About Short Selling” and “All About Commodities.” Follow him on Twitter @ttaulli. As of this writing, he did not own a positioning any of the stocks named here.