Investing Ideas for Icahn (and the self-directed investor)
Posted on Mon, Dec 12, 2011
Billionaire investor Carl Icahn has resorted to an unsolicited buyout attempt for Commercial Metals (NYSE: CMC) after the board rejected his cash bid for the company. The $15/share bid requires the support of at least 40 percent of shareholders to succeed, that would give Icahn a majority when combined with his current stake of about 10 percent.
After the bid is accepted (which is far from certain as it will likely need to be raised), Icahn and his team will attempt to extract value and increase efficiency by selling off the non-core assets, replacing management and merging business units. Analysts predict the project could net close to $10/share but is likely to take years.
There must be an easier way.
Icahn's investment philosophy is well documented in numerous biographies and interviews. Many recurring themes exist in both his passive investments and his activist undertakings. The ideas of efficiency and profitability are certainly not unique by themselves, however the manner in which Icahn measures and combines various metrics leads to distinctive stock selection.
Workforce efficiency, asset utilization and the potential for growth are the key elements to both active and passive investments made by Mr. Icahn. We've transformed this philosophy into an investment strategy for individual investors by utilizing unique combinations of profitability, efficiency and growth metrics in order to identify superior investment opportunities. One example of an Icahn-style opportunity for self-directed investors is Dolby Laboratories (DLB). No other domestic equity can boast a more impressive combination of profitability (88% gross margin, 32% profit margin), efficiency (17% ROA) and growth (27% EPs growth), while trading at less than 12 times earnings. Granted being dropped by Microsoft for the Windows 8 project was not in management's plans. However, with a renewed focus on marketing, strong fundamentals, and deeply discounted shares, the potential for significant gains is unmistakable.
Icahn Efficient Tech is a model strategy offered to users of the Bloodhound System. In a 25 year backtest the strategy has an average annual return of over 20%.
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