3 Stocks That Could Make or Break Carl Icahn's Portfolio

Markets Motley Fool

Carl Icahn, the activist investor and recently resigned advisor to President Donald Trump, is known for high-profile investments such as Herbalife, which has received lots of attention over the past few years. However, you might be surprised to learn that Herbalife is Icahn's second-largest stock investment. Here's an overview of Icahn's three largest holdings, and a little bit about why he believes in each company.

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Company

Recent Stock Price

Shares Owned

Total Value

American International Group (NYSE: AIG)

$61.29

43,000,000

$2.64 billion

Herbalife (NYSE: HLF)

$68.04

22,872,324

$1.56 billion

Cheniere Energy (NYSEMKT: LNG)

$40.80

32,680,490

$1.33 billion

(Technically speaking, Icahn's largest holding is his massive stake in his holding company Icahn Enterprises (NASDAQ: IEP). At the end of the second quarter, Icahn owned 149,276,054 shares of Icahn Enterprises, with a total market value of $7.4 billion. Excluding that, however, these are Icahn's largest investments.)

1. American International Group

Despite selling about 5% of his stake in insurance giant American International Group during the second quarter, it remains Icahn's largest stock holding by a wide margin.

Icahn's activist approach with AIG centered around the idea that the company is "too big to succeed." Specifically, Icahn believed that the company should break up its diverse insurance business into several separate companies, and pressured AIG's management to pursue such a strategy in a 2015 letter. Icahn also played an instrumental role in getting former CEO Peter Hancock out of the company.

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New CEO Brian Duperreault has said that he plans to direct less of AIG's cash to buybacks and more into acquisitions, which seems to be in direct contrast to Icahn's position, which may be the reason the billionaire has reduced his stake somewhat.

It remains to be seen whether AIG's new leader can successfully turn the company around and bring its profits back to a respectable level, as AIG currently generates returns on equity (ROE) that are a small fraction of most other big insurers. For the time being, however, Icahn has reportedly backed off his breakup demands, and is in wait-and-see mode. Icahn wants to give Duperreault an opportunity to turn the company around in his own way, which would likely translate into a big payday for Icahn.

2. Herbalife

Herbalife sells nutritional products through a network of distributors, with about four million members in more than 90 countries around the world.

Icahn's Herbalife stake has been a widely publicized investment, particularly because the stock has billionaires on both sides of the trade. Icahn is a big believer in Herbalife, and with a stake of nearly one-fourth of the company, he's certainly put his money where his mount is. On the other side, hedge fund manager Bill Ackman is short Herbalife, claiming that the company is a "pyramid scheme," and betting that the stock will ultimately collapse. Since Ackman's original presentation on Herbalife in 2012, there has been an ongoing rivalry between the two men, including the pair screaming at each other on live television.

In October 2016, Icahn asked for (and received) permission from the U.S. Federal Trade Commission to acquire up to 50% of the company's outstanding shares. Icahn recently agreed to keep his stake below 50% unless he plans to buy the company outright, but there's a lot of room between the roughly 25% he owns now and 50%, so it's entirely possible that Icahn's stake in Herbalife could grow.

3. Cheniere Energy

Texas-based energy company Cheniere Energy is a major player in the liquified natural gas (LNG) business in the U.S.

Icahn has taken a somewhat activist approach in his Cheniere investment, saying that the company was paying its managers too much, and was spending too much money in general. In addition, Icahn successfully ousted the company's CEO in 2015, who was replaced by Jack Fusco in 2016.

Aside from that, Icahn seems to remain invested in Cheniere simply because he feels that the stock is undervalued and has lots of potential to grow its market share. Since the third quarter of 2015, when most of Icahn's 13.8% stake in the company was purchased, shares are down by about 15%, and are trading for less than half of their 2014 highs.

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Matthew Frankel has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.