by Dan Burrows | December 18, 2013 11:30 am
Icahn Enterprises (IEP) has been at the center of so many hot stock stories recently — especially when it comes to Apple (AAPL) and its stake in AAPL stock — that 2013 might as well be called the Year of Carl Icahn.
Indeed, the more billionaire activist investor Carl Icahn stomped around the stock market like Godzilla, the better shares in Icahn Enterprises did this year. And that kind of drama could be just the kick AAPL stock needs in 2014.
Among Carl Icahn’s most notable ways of holding the market headlines hostage this year were hassling Apple to buy back more AAPL stock, bidding to take Dell private, going long on Herbalife (HLF) in order to punish a rival billionaire who went short, and selling a huge stake in Netflix (NFLX) at an obscene profit.
Look at the performance of Icahn Enterprises stock and you’ll see there’s a method to its chairman’s madness (even when Carl Icahn is publicly bullying the CEO of Apple). After all, shares in Icahn Enterprises are back to pre-financial crisis levels.
After four years of being range-bound around $40 a share, Icahn Enterprises blasted off in 2013. For the year-to-date, Icahn Enterprises is up over 170% to trade at almost $120 a share — a price it hasn’t seen since late 2007. Just a couple weeks ago, Icahn Enterprises was hitting all-time highs just shy of $150.
That’s only added to the cash pile known as Carl Icahn Net Worth, which is currently estimated at $20.3 billion.
But price appreciation in Icahn Enterprises is just part of the Carl Icahn equation. Icahn Enterprises is structured as a master limited partnership, meaning it has to pay out most of its earnings as dividends. Add in the dividend — currently yielding 3.8% — and the the total return from shares in Icahn Enterprises comes to 185% for the year-to-date. By comparison, the S&P 500’s total return comes to 27%.
Most important, an investment in Icahn Enterprises gives you exposure to a wide range of companies and industries, ranging from energy to real estate to gambling. But it’s the Icahn Enterprises investment portfolio that is in many ways the most intriguing aspect of the company — especially as a relatively safe way to play Apple stock.
Carl Icahn is pressuring Apple to return even more of its mountain of cash to stockholders by buying back AAPL stock. Of course, with its significant stake in AAPL stock, Icahn Enterprises would do well if Apple raised it share repurchase plan to $110 billion from $60 billion, as Carl Icahn wants.
And Carl Icahn does indeed have a lot of chips on the table. As of Nov. 29, Icahn Enterprises owned Apple stock worth $2.63 billion. Although that represents an ownership stake in AAPL stock of just 0.5%, it is by far the biggest cash position held by Icahn Enterprises.
At the same time, AAPL stock is up just 2.6% this year. That’s right: Apple stock is actually weighing on performance at the Icahn Enterprises portfolio. But if Apple stock can turn it around in 2014, it will become a tailwind for Icahn Enterprises.
All of which means this: Betting on Apple stock through Carl Icahn is way to participate in an AAPL rebound while also mitigating risk. In addition to a majority ownership in businesses such as CVR Energy (CVI), Icahn Enterprises also holds significant stakes in stocks like Forest Laboratories (FRX), Chesapeake Energy (CHK) and Transocean (RIG).
That broad diversification helped make Icahn Enterprises a huge winner this year, even with Apple stock stuck in a rut. Heck, AAPL stock went nowhere this year, and Icahn Enterprises still came close to tripling.
If AAPL stock does bounce back next year, that’s a boost for Icahn Enterprises. And if Apple stock continues to languish, Icahn Enterprises has proven to be more than fine without it.
For a low-risk way to play a resurgence in Apple stock, you could do a lot worse than letting Carl Icahn and Icahn Enterprises lead the way.
As of this writing, Dan Burrows did not hold a position in any of the aforementioned securities.
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