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A 40% Return In Four Months

By: Wyatt Investment Research
Posted: 10/30/2013 7:06:00 AM
Referenced Stocks: AAPL;FRX;IEP

Because I'm a value investor I love bargains. You can imagine, then, the anticipation when I found a bargain opportunity to invest alongside one of the great value investors - Carl Icahn.  

Icahn is the chairman and 89%-percent owner of publicly traded investment firm Icahn Enterprises LP ( IEP ) .  Through Icahn Enterprises, he has established an enviable record of creating value for himself and his partners. Since 2000, Icahn Enterprises' shares are up 1,025%.

I've followed Icahn for years, because I've shared an affinity for his strategy for creating value. He simply buys companies at depressed prices, and then actively agitates to create value in these companies.

The more depressed the company, the greater the value proposition.

Icahn bought Forest Labs ( FRX ) in May 2012, two months after its top drug, the antidepressant Lexapro, lost its patent. He repurchased Chesapeake Energy in May 2012 as natural gas prices crashed and it looked as if the company might drown in debt. Both companies have since created significant value for Icahn Enterprises investors. 

Big game is also in the offing. Through Icahn Enterprises, Icahn bought 4.7 million shares of moribund Apple ( AAPL ) in August when its shares were trading around $400. After Icahn announced his position and his recommendations to create value - namely share buybacks and dividends. Apple shares subsequently took flight and are well above $500 today.

Back in July, Icahn Enterprises was on sale. Its units were languishing near $70. A recent offering of 1.6 million units, which raised dilution concerns, put off some investors.

At the depressed price, Icahn Enterprises was simply too obvious a value to pass. Given Icahn's track record, I felt assured any new capital would be efficiently allocated to generate future value.

My confidence was further buttressed by a 25% increase in Icahn Enterprises' quarterly distribution to $1.25 per unit, which lifted the yield to over 7%. You don't issue more units and then hike the distribution on all outstanding units unless you have faith in your value-creating ability. 

In short, the value I expected to materialize has subsequently materialized. Icahn has efficiently allocated capital to Apple (as well as to other lesser investments) to produce another win for Icahn Enterprise investors.

Today, other investors are finally seeing what I saw mid-summer. Icahn Enterprises units change hands for more than $100 each. High Yield Wealth subscribers who followed my recommendation have realized a 40% gain in past four months.   

I remain on board with Icahn Enterprises and believe Icahn will continue to create value for his investors. Opportunities abound, and will continue to abound for years to come. Icahn has said as much himself. 

In a letter to Wyatt Investment Research commending us on our insight and research on Icahn Enterprises, Carl Icahn wrote: "I believe activism done correctly, combined with staying power, creates by far the greatest risk/reward ratio in markets. And this will hold true for the next decade." 

I couldn't agree more.