Billionaire investor Carl Icahn has increased his shares of Cheniere Energy, Inc (NYSE:LNG), a liquefied natural gas port operator company that hasn’t made a profit in more than two decades.
Icahn first reported an 8.2% stake in the company in the beginning of August. Several weeks after this move, the company agreed to add two of Icahn’s picks to the company’s executive board. The billionaire stock market guru now holds 22.7 million shares, or 9.59% of Cheniere stock. (Source: Business Insider, last accessed September 15, 2015.)
When asked why he would invest so much in what appears to be a failing business, Icahn responded that he believes that Cheniere is undervalued at present.
But he’s in the minority, as there are plenty of pessimists regarding Cheniere.
Jim Chanos, investor at Kynikos Associates, told CNBC last week that he will be short-selling the company’s stock. (Source: Bloomberg, last accessed September 15, 2015.) He cites the growing slump in the natural gas sector, and how there’s a looming financial disaster that could drive prices of the commodity even lower.
The success of liquid natural gas (LNG) plays is connected with Asia, which for a long time was a source of growing demand. With the growing fear stemming from a Chinese stock market crash and slumping demand growth, commodities such as natural gas are seen as unsafe by many investors.
Many countries invested billions in LNG infrastructure, hoping to cash in on the financial bonanza which was Asia’s hunger for energy and raw materials. But as demand growth slows and commodity markets turn bearish, there are fears that this will translate into a broader economic downturn.
Cheniere’s stock value has dropped by more than 16% since Icahn reported his purchase. The billionaire is known for making smart investments, so it could be a signal LNG stock has bottomed.