3 Carl Icahn Predictions for 2017

carl icahn predictionsA New Addition to the Carl Icahn Portfolio

This week, Carl Icahn, the notorious corporate raider and billionaire investor, set his eyes on a new target: Bristol-Myers Squibb Co (NYSE:BMY).

We dug through his regulatory filings to see if this position matches earlier Carl Icahn predictions, and what we found is big news for the Bristol-Myers stock price.

Before now, investors were pricing BMY stock based on the firm’s cancer research. The company has poured tons of money into cancer research, hoping to find new treatments. It’s a lofty goal, to be sure, but one with a potentially massive payout.

When viewed in this light, BMY stock is a high risk/high reward kind of investment. Carl Icahn changes that dynamic. His mere presence means we have to go back to the drawing board and value Bristol-Myers from a fresh perspective.

Why, you ask? Because Icahn is a corporate raider. He is famous for hostile takeovers that make shareholders rich, even if it means stripping the company for parts. I wouldn’t be surprised if Icahn forces Bristol-Myers onto the chopping block—a sale that could fetch well over $100.0 billion.

The market is reacting well to activist intervention in BMY stock. For instance, JANA Partners LLC added fuel to the Bristol-Myers stock price in February. They essentially coerced the company into a $2.0-billion stock buyback program, and added three new directors to the board.

BMY

Chart courtesy of StockCharts.com

This new possibility (of a Bristol-Myers Squibb acquisition) changes everything. It means that BMY shareholders can get a significant cash return quicker than they expected, but it also could diminish the potential payout from cancer treatments. So why is Icahn doing this?

To answer that question, we have to go back to earlier Carl Icahn predictions.

1. Carl Icahn Predictions: The Stock Market Is in a Bubble

Based on recent movements in the infamous Carl Icahn portfolio, you would think the legendary investor is bullish on the stock market. You would be mistaken.

Icahn has long harbored a pessimism about the U.S. financial markets. He thinks that the U.S. Federal Reserve’s insistence on low interest rates has created a massive bubble that could rupture at any moment. This isn’t just guesswork on my part; Icahn has made these predictions in public.

“I don’t think you can have [near] zero interest rates for much longer without having these bubbles explode on you,” he said. “You [also] need fiscal stimulus [from Congress].”

A deeper look at the Icahn portfolio shows that he “walks the talk.” His funds keep a standard short position on the market, meaning that he stands to make money from a stock market crash. Put another way, Icahn backed up his prediction with a bet against the broader economy.

“If you look at what we call ‘our fund’ we probably are net short [in investments],” said Icahn. (Source: “Carl Icahn: Soros has points with bearish bets; stocks falsely being propped up,” CNBC, June 9, 2016.)

Considering this pessimism, you could ask the question: Why would Icahn bet on BMY stock? My best guess is that he wants to:

  1. Force a Bristol-Myers Squibb acquisition,
  2. Turn a quick profit,
  3. And get out of the market as quickly as possible.

His logic makes sense from a certain perspective. Even if you think the stock market is in a bubble, what better time to sell a massive biotech company? The bull market creates reckless spending, so you’re more likely to find a buyer, and the price would be much higher than in a bear market.

2. Carl Icahn Predictions: Herbalife Will Survive

Some investors might remember an epic showdown on CNBC between Carl Icahn and Bill Ackman. The two billionaire investors had a sharp disagreement over Herbalife Ltd. (NYSE:HLF).

Ackman was basically accusing Herbalife of being a glorified pyramid scheme. This obviously upset Icahn, seeing as he owned a fairly large stake in Herbalife. But what followed was perhaps the strangest 10 minutes of financial television in history.

In any case, it does not appear like Icahn is backing down. He bought another 2.9 million shares in HLF stock, increasing his stake by 15%. This comes after another 15% bump in the previous quarter, meaning that Icahn now owns nearly one quarter of Herbalife.

CARL ICAHN PORTFOLIO MOVEMENTS

Ticker Company

Shares

Value

% of Portfolio

Movement

HRI Hertz Global Holdings Inc

29,263,869

$630.9M

2.81%

+127%

HLF Herbalife Ltd.

22,500,000

$1.08B

4.84%

+15%

IEP Icahn Enterprises LP

129,999,050

$7.79B

34.81%

+3%

AIG American International Group Inc

45,644,982

$2.98B

13.32%

ARII American Railcar Industries, Inc.

11,871,268

$537.7M

2.4%

His money is doing the talking now.

That being said, HLF stock bears lean pretty heavily on the stock. The short interest can sometimes top 40% of the float. While this also creates the conditions for a massive short squeeze, investors should treat this investment with caution.

3. Carl Icahn Predictions: The Apple Era Is Over

There are famous Carl Icahn investments, ones that mark his career and cement his legacy. For instance, Icahn once made over $1.6 billion profit by selling his shares of Netflix, Inc. (NASDAQ:NFLX). However, these trades never look like a “sure thing” as they are ongoing.

There is usually friction around the best long-term plays. Icahn has made a career out of winning those bets, which is why it’s scary that he sold all his Apple stock. He was so bullish on AAPL for such a long time!

Nonetheless, Icahn divested his entire stake in the “iPhone” maker early last year, citing weakness in China. (Source: “Carl Icahn: I might consider getting back into Apple if not for China concerns,” CNBC, June 9, 2016.)

“I would get back in [to Apple] if I felt more secure about China,” he said. “I don’t think anybody can tell you that China is not going to have a problem, even though it might be a very small one.”

It turns out he shouldn’t have worried so much, as the fears about China’s impact on AAPL were overblown. Not only did sales in Greater China rebound with gusto, but Apple’s share price bounced up to new heights.

As to whether the price can sustain that level…well, that’s a different conversation.

I thought perhaps Icahn would rush back to Apple in the wake of its recent results, but all evidence suggests he is steering clear of the company. I think that chapter is officially closed.