The Activist Stock Chart of the Day: Transocean and Carl Icahn


Fact #1: Carl Icahn has returned 27% annualized over the past 52 years.

Fact #2: Academic studies from Harvard, Duke and NYU have shown that activist investors like Carl Icahn have produced an excess annualized return of 20% on average (i.e., the return above the S&P 500). So these studies show activists doing 30% relative to 10% in the S&P (during the period analyzed).

With that, when you see a top activist like Carl Icahn down on a stock, and the stock is underperforming the S&P 500, it presents a very intriguing opportunity — perhaps even a time to back up the truck.

This is the core strategy we implement in our Billionaire’s Portfolio service. We want stocks owned by the world best billionaire activist investors — particularly when they are down on them, and these stocks present an asymmetric risk/reward (little downside, a lot of upside opportunity).

Icahn is down more than 20% on his 6% stake in Transocean, as his average cost for Transocean is around $50. Transocean is down 19% year-to-date and is underperforming the S&P 500 by 26%.

Based on Icahn’s track record and the academic studies on the performance of activism, if Transocean fell in line with that history, we could see at least a 45% move for RIG, and that is assuming the S&P 500 returns zero.

Even better, you get to buy Transocean at a cheaper price than what Carl Icahn paid, and the stock has just formed a double bottom. You could pick the bottom in this stock.

Transocean recently reported better than expected earnings, but the stock has been weak due to a correction in oil prices — a move that is bucking the trend of rising geopolitical tensions (for the moment). Transocean has also recently declared its dividend, which always causes a high-yielding stock to temporarily sell off.

For a higher-risk way to play it, buying the Feb 2015 $40 call options for $2 could net you as much as a 600% return if Transocean goes up 45% by the end of February 2015. That’s $1,200 for every $200.

Will Meade
President of The Billionaires Portfolio