Billionaire Carl Icahn Picks up These 2 Stocks on the Dip
Rounding out an exceptionally volatile week of trading, the market delivered another dramatic swing, this time finishing in the green. After March 12 saw both the S&P 500 and the Dow Jones indexes post their largest single-day percentage losses since the October 1987 crash, stocks rallied the next day, with the S&P 500 jumping over 9%. This gain, which represents its best session since 2008, came as a result of President Trump’s declaration that his administration will do whatever is necessary to mitigate the coronavirus’ impact on the economy.
Against this backdrop, billionaire investor Carl Icahn offered up his take on the market’s sell-off. The Wall Street heavyweight graduated from Princeton with a Philosophy degree, and went on to found publicly traded holding company Icahn Enterprises. With a current net worth of $15.2 billion, the guru is known as one of the most successful stock pickers on the Street, and thus captured investor attention with his most recent statements.
While noting that stocks still haven’t hit bottom yet, Icahn argues that the recent market weakness presents investors with unique buying opportunities. “Now it’s reached a point that there are some companies that are sort of just given away. Some of these companies are awfully cheap, they’re very cheap,” he commented.
Setting out on our own stock search, we decided to take a page from the billionaire’s playbook. We looked at two names Icahn snapped up recently, and after running them through TipRanks’ Stock Screener, found out that each boasts serious upside potential. Here are the details.
Hertz Global Holdings Inc. (HTZ)
Hertz Global is the holding company behind the Hertz car rental service, one of the top players in the space. So far in 2020, shares have plunged 48%, but that doesn’t mean it’s time to count this name out just yet.
Based on his recent purchase of over 11.4 million shares, this appears to be the opinion of Icahn. From March 10-March 12, he spent $7.43 per share, on average, to boost his HTZ position. With the total holding now coming in at 55,342,109 shares, Icahn owns a 38.9% stake.
Turning now to the analyst community, while the company reported an EBITDA miss for the fourth quarter, Jeffries’ Hamzah Mazari argues that the print wasn’t all bad. Thanks to “higher than expected vehicle depreciation expense which Avis (CAR) did not experience”, EBITDA missed the Street’s $68 million call by 21%, with the figure only reaching $54 million. That being said, Mazari points out that SG&A and U.S. RAC pricing was better than expected.
“Having said that, Q4 pricing came in 4%-plus in U.S. RAC which is the strongest seen in 8-plus years. We think HTZ focus on pricing will be a main driver in 2020 as management is not willing to sacrifice on price for volume. We note this is a different strategy from that of CAR as they go after longer length of rental (sacrifice some on the pricing side),” the analyst stated.
It should be noted that some investors have expressed concern related to vehicle costs as increased recall activity and the roll off of depreciation benefits as 2018 models were sold caused deprecation per unit to grow 11%. However, Mazari doesn’t expect this to hamper the company going forward as fleet management improves and residuals decline to low single digits. Margins are also slated for a boost as a result of productivity initiatives, according to Mazari.
However, the analyst thinks that HTZ still has work to do in terms of its transition in addition to its high balance sheet leverage and low visibility into the timing of investment spend fall off. This prompted Mazari to reiterate a Hold call and a $17 price target. Nonetheless, this target conveys his belief that shares could soar 106% in the next twelve months. (To watch Mazari’s track record, click here)
What does the rest of the Street think about HTZ? Looking at the consensus breakdown, 2 Buys and 1 Hold issued in the last three months add up to a Moderate Buy. At $17.67, the average price target brings the upside potential to 114%. (See Hertz stock analysis on TipRanks)
Newell Brands Inc. (NWL)
Over the last century, Newell Brands has made a name for itself as one of the top consumer goods companies. Its well-known brands include the likes of Sharpie, Coleman, Rubbermaid and Crock Pot, just to name a few. Despite falling 34% in the last month, some Wall Street pros think investors should take advantage of the opportunity presented by the recent weakness.
Carl Icahn falls into this category. Between March 9-March 11, the billionaire pulled the trigger on 2,585,201 NWL shares, making him a 10.7% owner of the company. At an average price of $13.41 per share, the total purchase value comes in at about $34.7 million.
Meanwhile, after CEO Ravi Saligram’s presentation at the CAGNY conference in Florida, SunTrust Robinson analyst Bill Chappell walked away more confident in the company’s long-term prospects. NWL has struggled following the loss of a large number of highly qualified managers between 2017 and mid-2019 which led to lower moral among employees. That being said, Chappell sees NWL’s appointment of a new head of the Outdoor & Rec segment and its three new senior hires as steps in the right direction.
“Past management teams have erred in trying to centrally operate the business vs. relying on managers who fully understood the intricacies of their particular business. These new hires, along with others expected in the coming months, give us greater confidence that NWL can at least maintain category growth over the next few years,” Chappell explained.
On top of this, management stated that in the long run, it will place a significant focus on achieving LSD core sales growth, 50 basis points of annual operating margin improvement and 100%-plus free cash flow (FCF) conversion. According to Chappell, should the company meet its FCF goal, it would imply that its 108% FCF conversion in 2019 wasn’t a one-time victory. He added, “Also, we believe this implies that the company, often thought of as a ‘serial restructurer’, is now finally done with major restructuring. As the FCF opportunity is better understood by the Street, we believe the stock’s multiple will expand.”
Even though growth in NWL’s Outdoor & Rec and Appliances & Cookware businesses isn’t expected for at least a year, Chappell points out that they only account for about 10% of profits. It also doesn’t hurt that the dividend yield lands at more than 8%.
Based on all of the above, Chappell stayed with the bulls. In addition to reiterating his Buy recommendation, the five-star analyst left the $25 price target as is, implying 93% upside potential. (To watch Chappell’s track record, click here)
Out on the Street, other analysts are less bullish on NWL. A Hold consensus rating breaks down into 1 Buy and 4 Holds. While less aggressive than Chappell’s forecast, the $21.50 average price target still leaves room for a possible 66% twelve-month gain. (See Newell Brands price targets and analyst ratings on TipRanks)