Markets

How To Invest Like 'The Next Icahn'

An image of a pen on a stock chart
Credit: Shutterstock photo

Carl Icahn is a notoriously headstrong man. He never hesitates to shame, cajole and coerce CEOs until they start following his advice. Icahn's cage-rattling approach has surely led to some impressive investment returns .

#-ad_banner-#While Icahn still grabs many headlines when he browbeats companies like Apple (Nasdaq: AAPL ) until they announce share buybacks large enough to satisfy him, an up-and-comer in the hedge fund industry has taken a very different approach.

Mark Rachesky, who worked for Icahn earlier in his career, has become known as a "passive activist." He follows the Icahn playbook by pursuing undervalued companies that can take steps to unlock value -- but he takes those steps as an insider, not an outsider. Rachesky's approach could be described by the adage "You can catch more flies with honey than vinegar."

The Studio Standoff

Icahn and Rachesky actually squared off a few years ago over film studio Lions Gate Entertainment (NYSE: LGF ) . Icahn wanted the company to either take value-unlocking steps or sell him the company outright. Lions Gate was also being targeted by Rachesky, but in a much calmer manner.

After repeated pushbacks from Lions Gate, Icahn lost the will to fight and sold his shares in the summer of 2011. Rachesky swooped in and sharply boosted his own stake in Lions Gate -- while being named co-chairman. Shares have gone on to post terrific gains.

Whenever Rachesky becomes chairman of a company, you should pay attention. He took the reins of Leap Wireless, and his stake in the company quickly doubled in value last summer when agreed to acquire Leap for $1.2 billion.

Whenever Rachesky becomes chairman of a company, you should pay attention. He took the reins of Leap Wireless, and his stake in the company quickly doubled in value last summer when AT&T (NYSE: T ) agreed to acquire Leap for $1.2 billion.

These days, Icahn knows better than to go head-to-head against Rachesky, who now oversees more than $5 billion at his MHR Funds. They are both currently targeting truck engine and vehicle maker Navistar (NYSE: NAV ) , which currently trades for half of the levels seen back in February 2011, and the two fund managers have avoided the public rancor seen in the battle over Lions Gate.

Rachesky's Next Project

While Rachesky builds a position in Navistar, he is also devoting his energies to Titan International (NYSE: TWI ) . I profiled this maker of massive tires back in December , after an especially difficult year. As I wrote then: "TWI has missed profit forecasts by at least 40% in three of past four quarters, and per-share profits are on track to fall by nearly half this year, to $0.94 a share."

Business hasn't improved since, and a quick look at the stock chart shows a company in need of help.

Titan was formed 20 years ago by Maurice Taylor, a hard-charging executive who is most famous for telling French workers that they are lazy and undeserving of a Titan factory (a controversy which has since been smoothed over). As you might imagine, this headstrong CEO doesn't take kindly to activist investors trying to force him to change how he runs his business.

Rachesky began to invest in Titan, befriended Taylor over a round of golf... and got himself invited onto the company's board last month. That's precisely the kind of move that investors should welcome. Look for Rachesky to gently prod Taylor into steps that help boost this lagging stock. Perhaps an asset sale or two will do the trick.

Patience will be required. Titan is seeing tepid global demand for its massive tires, and per-share profits remain stuck below $1 these days. Still, a little tweaking of the business, coupled with modest improvements in the economy, could go a long away: Titan earned more than $2 a share as recently as 2012. In light of Rachesky's impressive track record, Titan International is now a name to watch for 2014.

If you want to track the moves of Rachesky or any other fund manager, you can find good information at SecForm4.com . Other current holdings include Key Energy Services (NYSE: KEG ) and Loral Space & Communications (NYSE: LOR ) .

Risks to Consider: Hedge fund managers don't need to update their holdings until after the end of each quarter, so there's no assurance that these investments are still held by Rachesky.

Action to Take --> Mark Rachesky tends to focus on deep value plays, which adds a margin of safety in the event that his value-unlocking moves don't pan out. His investment in Titan International looks like a solid play, as Titan has a wide moat around its business, and just needs a more compliant economy to help maximize profits.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

© Copyright 2001-2016 StreetAuthority, LLC. All Rights Reserved.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Street Authority

Founded in 2001 by industry veterans, StreetAuthority is a financial research and publishing division of Investing Daily. Our mission is to help individual investors earn above-average profits by providing a source of independent, unbiased — and most of all, profitable — investing ideas. Unlike traditional publishers, StreetAuthority doesn’t simply regurgitate the latest stock market news. Instead, we provide in-depth research, plus specific investment ideas and immediate action to take based on the latest market events.

Learn More