Carl Icahn is known for making big bets. Currently, only three energy stocks account for more than a quarter of his portfolio. Each stock has very different characteristics, so be sure to understand all three if you want to follow Icahn.
This one stock is Icahn's biggest bet.
Just three energy stocks may make up more than a quarter of Mr. Icahn's portfolio, but the bulk of his quarter is made up of one stock: CVR energy (NYSE:CVI).
CVR Energy is primarily an oil refiner, producing products such as gasoline and nitrogen fertilizers. This is a very different business than upstream oil companies, which produce raw inputs and which CVR Energy refines. While oil and gas producers hope to boost their profit margins through higher commodity prices, refiners like CVR Energy are more concerned with crack spreads, or the difference in value between crude oil and its refining byproducts. I am.
CVR Energy is simply capturing the value of this “intermediary”, so it can profit in any type of pricing environment. While certainly still highly exposed to oil price fluctuations, compared to energy producers such as western oil (NYSE:OXY) — Next stock on this list — CVR Energy's margins are relatively stable.
Why is Icahn so bullish on CVR Energy? Icahn has owned the stock for a long time, acquiring a majority stake in 2012. He particularly likes the company's strategically located assets, according to the filing. Refiners want to locate near production and transportation facilities, and CVR Energy has enviable assets near major crude oil and refined product transportation hubs. Mr. Icahn also likes the dividend, which currently yields 6%.
These two stocks give Icahn a complete energy portfolio.
The other two major energy stocks in Mr. Icahn's portfolio are the aforementioned Occidental Petroleum (in which Mr. Icahn owns stock options rather than direct stock); southwest gas holdings (NYSE:SWX). Combined with CVR Energy, these stocks effectively create an integrated energy business. Occidental is a major oil and gas production company and Southwest Gas is a natural gas utility serving more than 2 million residential, commercial and industrial customers in Arizona, Nevada and California. As a basket of stocks, Icahn has complete energy exposure, from production to refining and distribution to end customers.
Considered individually, each stock offers a unique balance of risk and reward. Occidental Petroleum is doing well when energy prices are rising. CVR Energy is performing well at a time when refining margins are increasing. On the other hand, Southwest Gas actually wants a more stable pricing environment where it can profit from its distribution network rather than from fluctuations in commodity prices.
If you want to replicate Icahn's energy stock picks in your own portfolio, it's best to replicate them completely. In other words, don't choose just one. Mr. Icahn is probably well aware of how each stock offsets the risk of the others. If oil prices collapse, his holdings in Southwest Gas and CVR Energy could be hurt. And when refining margins tighten, that typically means that value flows elsewhere in the supply chain, with Occidental Petroleum and Southwest Gas among the beneficiaries.
Still, there's no question that Icahn is the most bullish on CVR Energy. However, the reason is not clear. valero energyis another refiner whose stock price has risen 196% over the past five years.Meanwhile, CVR Energy stock fell It increased in value by 31% over that period. Still, Valero trades at 2.1 times book value, while CVR Energy trades at nearly 4 times book value.
Despite Icahn's bullish stance, CVR Energy stock doesn't seem like a bargain. When adding stocks to your portfolio, it's probably best to diversify your energy supply chain exposure with stocks like Occidental Petroleum and Southwest Gas.
Should you invest $1,000 in Occidental Petroleum right now?
Before buying Occidental Petroleum stock, consider the following:
of Motley Fool Stock Advisor Our analyst team has identified what they believe Best 10 stocks What investors should buy right now…and Occidental Petroleum wasn't one of them. These 10 stocks have the potential to generate impressive returns over the next few years.
when to think about it Nvidia This list was created on April 15, 2005…if you invested $1,000 at the time of recommendation. you have $537,557!*
stock advisor provides investors with an easy-to-understand blueprint for success, including guidance on portfolio construction, regular updates from analysts, and two new stocks each month.of stock advisor For the service more than 4 times The resurgence of the S&P 500 since 2002*.
See 10 stocks »
*Stock Advisor will return as of April 22, 2024
Ryan Vanzo has no position in any stocks mentioned. The Motley Fool recommends Occidental Petroleum. The Motley Fool has a disclosure policy.
Billionaire Carl Icahn's portfolio has more than a quarter in these three energy stocks Original article published by The Motley Fool
