Carl Icahn disclosed a 9.4% stake in Family Dollars stores on June 6. The stock gapped up more than 16% on the news. Today Icahn is beginning to rattle the cage at FDO. He’s demanding a sale of the company to drive shareholder value. We’ve followed Icahn on four stocks in our premium service, The Billionaires Portfolio. Icahn’s continued investing success can be attributed to one important talent: He’s a change-maker.
When we follow him, we can be assured that he has a plan for change and that he will fight to make it happen. Plus, when we follow Icahn, we get an added bonus that few, if any, other big time investors summon: Because of his great success, his campaigns tend to attract other influential investors to join in – stacking the odds even more favorably for shareholders.
Here’s a look at the Icahn effect on FDO thus far:
We have 20 stocks in our Billionaire’s Portfolio that are all have the potential to be taken out for huge premiums. Join us!
Yesterday, Idenix Pharmaceuticals (IDIX) was acquired by Merck for a 229% premium. That’s one of the biggest one day moves ever for a stock listed on the New York Stock Exchange. Billionaire and top hedge fund manager, Seth Klarman of the Baupost Group, made over $1 billion on his investment in Idenix, in one day.
How did he do it?
Klarman owned 35.4% of Idenix (almost 54 million shares). He paid around $300 million for his original stake, which is now worth $1.3 billion.
It’s very common in the hedge fund world for investors like Klarman to take such large positions in a single company. They spend a lot of money on talent and research, sometimes tens of millions of dollars, in an effort to uncover the investment opportunities that offer the potential to make multiples on their investment. When they find good candidates, like Idenix, they tend to bet big.
We have 20 stocks in our Billionaire’s Portfolio that are all have the potential to be taken out for huge premiums. Join us!
We were featured in Barron’s over the weekend! Excerpts below, with a link to the piece.
“The trick is to focus on the activist subset, says William Meade, co-founder of Billionaire’s Portfolio (billionairesportfolio.com). It usually takes big fund managers months to build positions and a year or more for their activist proposals to play out. Billionaire’s Portfolio, launched in August 2012, follows along, spreading a hypothetical $20,000 across 20 stocks held by the likes of Carl Icahn of Icahn Enterprises and Starwood Value’s Jeffrey Smith.
Meade follows about two dozen whales whom he describes as “true activists with a track record of taking a 5% position in a company and influencing change.” While many institutional purchases don’t show up on an SEC form for months, trades by 5% owners have to be reported within 10 business days. That usually bumps up share prices, but then they settle down.
For $297 a quarter, Meade alerts Billionaire’s Portfolio subscribers to entry and exit points through e-mail and on a private blog that details the rationale for every recommendation. Meade and aptly named co-founder Bryan Rich mirror those trades a day later in a $100,000 real portfolio they share. They buy on dips so subscribers realize about the same average share cost as activists. Positions adjust when activists do.
Meade only buys Russell 2000 issues he considers “undervalued.” But that assessment has less to do with price/earnings ratios and future cash flows than the — often, overtly stated — plans of activists to “unlock value.” “I only buy when there is an event or an influential investor positioned to reprice the stock,” he explains.”
“Meade’s backtesting shows that, whether their initiatives succeed or fail, his activists usually make money — a 31% annualized return over the past 12-years compared to the S&P 500’s 6.1%.”
Carl Icahn, the world’s greatest investor, is on pace to become the world’s richest man. And he has had a lot to say about Apple’s stock in the past week.
On Wednesday, he tweeted the following: “As we said at conference yesterday, we continue to believe $AAPL remains meaningfully undervalued. Many analysts fail to understand company” and “agree completely with $AAPL’s increased buyback and extremely pleased with results. Believe we’ll also be happy when we see new products.”
Remember, I am the man that called the bottom in Apple in the summer of 2013. I was profiled on CNN/Money saying Apple had bottomed around $400. I was the first and only person in the investment community to become bullish on Apple during this time.
I am more bullish than ever on Apple now. The 7-to-1 stock split will drop the cost of the stock to $80 from $547. That means every parent will now be able buy their kids Apple stock as a birthday gift, every small investor who couldn’t afford Apple at $550, will now be able to buy 5 shares of Apple at $80. This is guaranteed built in demand that will come into Apple’s stock when it splits in June of this year.
How do you profit from it? Well, I am quite confident that Apple will go up 20% or more by June of this year. And there is a trade that I am eyeing on Apple which has the potential to make 500% or more if I am right. It’s a low cost trade, one that will only cost you $690 but has the potential to make $3000 or more.
Remember, the world’s greatest investor, Carl Icahn, a man who has averaged 27.6% a year for 52-years (the greatest single track record of any investor, including old man Buffett) has also told you Apple is extremely undervalued. Icahn is so good, if you would have given him $10,000 when he first started his fund 52 years-ago you would now have an amazing $2.5 billion. So even if you don’t listen to me, listen to Icahn.
To get the specifics of this incredible “Apple Stock-Split Trade” all you have to do is subscribe today to our premium research service, The Billionaires Portfolio.
The Billionaires Portfolio is chock full of what hedge funds call “asymmetrical trades.” These are trades that have limited downside but huge upside potential. All of the stocks in our Billionaires Portfolio are not just undervalued, but they all have an influential billionaire hedge fund that is working with the company to create instant shareholder value and positive returns for the stock.
Will Meade
President of The Billionaires Portfolio
In an article this morning, Bloomberg reiterated what we have been telling people since 2002: Piggy-backing the picks of the world’s greatest billionaire investors and hedge funds is the best way to beat the market.
You can find the Bloomberg article here: Raiders-Turned-Activists Prove Boon for Stocks Beating S&P 500. Here’s the high level view: They cite a study that demonstrates the picks of activist investors have destroyed the S&P 500 with less risk over the past five years.
Interestingly, they mention one of the stocks we held in our portfolio last year (and consequently, our subscribers made nearly a 100% profit on). The stocks is Office Depot. We followed Starboard Value into ODP, also mentioned in the Bloomberg study. This investment played out brilliantly according to script. Starboard wrote an elaborate letter to ODP management at the outset of their campaign, laying out a game plan for unlocking value in the stock.
My partner and I have been piggybacking billionaire investors and hedge funds, specifically activist investors, in our accounts since 2002. We started our premium research service and website in 2012, giving average investors the opportunity to follow our lead. Join us!
I want to show you what the performance has been on an equal-weighted basket of stocks looking back through history within the portfolios of our universe of activst investors. This is a deep-dive into the real, audited histories of the best investors alive. There is one condition: For us to include the stock, they must have initiated an activist campaign against the company.
Our basket returned 31% annualized over the past 12-years. The S&P 500 returned just 6.1% in the same period.
More importantly, the stock picks of these top activists had only one losing year during the year. Of course, that was 2008. But the basket lost just 18.2%, versus a loss of 37% in the S&P 500.
So these activist investors beat the stock market by more than 4 times on an annualized basis. But they lost less than half of the broader stock market losses in a bad year (an apocalyptic year).
No mutual fund, ETF or private money manager on the entire planet has a returned anywhere close to 31% annualized over the period.
The best performing mutual fund in the world returned 14.5%. That same fund lost more than 45% in 2008!
Bottom line: As a basket, these select picks outperformed over 20,000 mutual funds, 5,000 money managers and 1,000 ETFs.
The Value of Small Stocks
Next, using the same universe of billionaire investors, I want to show you what the performance looks like when we narrow the universe of stocks by including just small capitalization stocks in the basket.
So we have scenarios here, historically, where our talented, influential investors have bought a controlling stake in a company. They have launched an activist campaign against the company. And in this case, the stocks meet these additional criteria. They have a market cap under $2 billion or they have a share price under $15 combined with a market cap of at least $500 million.
The average annualized return for the past 12-year was 52%. This compares to only a 6.1% annualized return in the S&P 500.
Takeaway: When our activist investors get involved in small caps, they get even more bang for their buck.
Biotech, Explosive Events
Now, lastly, we’ve had some great success early in the Billionaire’s Portfolio with our biotech picks. Novavax, our most recent high flyer has been a near triple for us.
As you’ve seen in our Billionaire’s Portfolio, biotech is a different animal. We follow domain experts in this area. We only want to piggy-back expert biotech investors around. Their brain is their edge.
By investing in all of the stock picks of our elite group of biotech hedge funds, you would have returned an incredible 44% annualized over the last 12-years. And guess what? They even made money in 2008!
Biotech stocks are the ultimate event-driven investment. They only move on news surrounding FDA approvals, positive trial data studies and partnerships with larger companies. These investments have little to no correlation to the overall stock market.
Billionaire’s Portfolio – The Optimal Portfolio
We’ve just walked through three historical studies on the universe of some of the best investors alive – digging through their real investments year in and year out. And we’ve seen three powerful results.
Given the numbers we’ve shown, you are probably wondering why we only returned 35% last year. Here’s why? First, remember we spent the first five months of the year building our portfolio out to full capacity (i.e. fully invested). With that, we held a lot of cash up to 25% for much of the first half of the year (certainly the first quarter).
Still, we beat the S&P 500 in a stellar year for the index.
But consider this: Believe it or not, activist investors had one of the worst year years in 2013 (compared to their history). Almost every one of the top activist investors in my study beat the S&P 500 every year since 2002. But in 2013, activist investors greatly underperformed the market, by as much as 15 percentage points.
So what does this mean? Within our universe of stocks, in our Billionaire’s Portfolio, we have shown an ability to select the high potential stocks that can become the big winners. And we do so by combining the three key approaches we outlined in our studies above. This, we believe, is the optimal portfolio.
Basically McDonalds is cheaper, has a higher dividend yield and double the profitability of Burger King yet Burger King has outperformed MCD by almost 35% over the last 6 months.
So how do you trade this, you simply go long and equal amount of MCD and short and equal amount of BKW. You can do this with stocks but a better play is to use options.
I would buy the May $97 MCD Calls for $1.10 a piece while simultaneously buying 2 May $25 BKW puts for $.55 cents.
Basically you would buy 10 May $97 MCD Calls for a total cost of $1100 and at the same time buy 20 May $25 Puts for $1100 dollars.
The catalyst that will reprice this trade will be earnings: McDonalds and Burger King both report earnings in late April.
It’s called a market neutral trade because you have zero market risk.
I am not a journalist. I have over 15 years of experience in the hedge fund industry working for a $1.5 billion hedge fund run by a former Goldman Sachs Partner/Harvard MBA and for an $11 billion hedge fund of funds.
Simply stated I have spent my entire career around the best investors and hedge funds on the planet. I know who they are and how they make money.
These top hedge funds and investors do not day trade, swing trade or stare at computer screens. That is an urban legend perpetuated by the brokerage houses to get you to trade as much as possible so they can get your commissions.
What the top investors and hedge funds do, is bet on sure things! They take controlling positions (5% or more) in undervalued companies and then push on these companies with all their force to create instant shareholder value. They do not throw darts or guess, they control their own destiny by putting their own people on the boards of these companies and then forcing these companies to produce positive returns in their stock.
So to become a millionaire or billionaire, you have to follow these rules:
1) Piggyback the best ideas of the worlds best billionaire investors and hedge funds! Why? Its simple, they have proven track records of making money and they already have researched the ideas for you. Before a top billionaire investor or fund takes a position they spend an average of $200,000 on research, consulting and legal fees!
2) Only piggyback funds and investors that have a proven track record of creating value in any market condition or economy. These Investors are called Activist, Event Driven or Private Equity investors.
3) Don’t blindly follow or copy the stock picks or ideas of any hedge fund or investor. I only piggyback the ideas/stocks of billionaire investors/hedge funds that have low portfolio turnover who hold their positions for at least a year and a half, so I know I am buying a stock they still own. It takes experience but I know which funds hold them and which funds fold them.
4) Keep your overhead low. Get an online broker with low commission rates, and do not trade actively. Not one billionaire investor or hedge fund I have ever worked with or met trades actively.
5) Never ever put your money with a stock broker or financial advisor. Simply put I have lived in 3 major cities during my career: Chicago, Washington DC and London and I have never met a wealthy person who follows or puts their money with a stock broker/financial advisor or mutual fund, those are rigged games(they win, you lose 100% of the time.)
What do the wealthy do?, if their rich enough they invest directly in hedge funds or private equity funds, if their smart and rich they do what I do, keep your overhead low, get an online broker and piggyback the best ideas of the world’s greatest billionaire hedge funds and investors.
6) Enjoy life, have hobbies, enjoy your time with friends and family but do not look at computer screens, CNBC or your portfolio every day. Trust me the wealthiest and best performing billionaire investors barely look at their trading accounts and positions once a day let alone once a week. Short term traders and day traders die early and broke. I promise you on this one, there is not one billionaire stock investor or hedge fund on the planet who stares at a computer screen all day.
7) Invest all your money in stocks, but keep a reserve in cash to add to positions. The stock market has averaged 9% a year since 1920, no other asset class in the world has averaged close to 9% annualized over the last 100 years.
8) Buy on dips and average down on your stock positions, that is the most common rule that the world’s greatest billionaire investors follow. Buffett, Icahn etc. all buy more of a stock when it goes down, its that simple. So keep cash and when the odds are in your favor and a stock drops add to your positions.
