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Beat Carl Icahn at His Own Game with These 4 Top-Rated Stocks

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Carl Icahn has the uncanny ability to dominate headlines, a gift which has been increasingly evident since the recently concluded presidential election. As special advisor to President Trump, Icahn is widely believed to be a key voice in the new administration. His detractors have been quick to point out that he seems more than eager to bend private policy for his personal benefit.

Icahn has recently admitted that the debate sparked off by his involvement in the affairs of state has been undesirable. Loved or hated, he continues to be of the most closely watched investors of our times. His reputation rivals the likes of Warren Buffett though his approach to investments is radically different.

But does his portfolio of holdings provide individual investors with great investment ideas? With his penchant for crowding into a handful of sectors and then forcing their management to become more investment friendly, his is a unique approach to investing. Instead, you may be better off by considering some of our top-ranked stocks from the same industry sectors which offer the promise of superior gains.

Portfolio Composition

According to his latest disclosure, Icahn’s $20 billion investment portfolio consists of stakes in 19 different companies. Of these, the largest is in his own venture Icahn Enterprises L.P., a diversified conglomerate with holdings across the mining, energy and automobile sectors. He also owns Brazilian mining company Ferrous Resources and auto parts retailer Pep Boys completely. Additionally, Icahn has an 82% stake in CVR Energy, Inc. .

In fact, nearly half of his portfolio consists of Icahn Enterprises and his stakes in American International Group, Inc. (AIG - Free Report) and PayPal Holdings, Inc. (PYPL - Free Report) . His key holdings are evidence of his penchant for betting on big ideas where his style of forcing management to become more attentive to its investors can most bear fruit. Among the original corporate raiders of the 1980s, Icahn now prefers the moniker of activist investor, triggering changes in businesses which he believes are poorly run.

Investment Style

It isn’t as if Icahn is likely to remain invested over the long term. A closer look at his portfolio holdings over the years reveals that most of the individual stakes he holds in companies, apart from Icahn Enterprises, have been acquired over the last two years. In fact, the majority of his portfolio has been assembled over the last 18 months.   

This fits in with his style of buying large stakes in companies in the search for short-term profit. Such an approach includes forcing companies to utilize cash or borrowings to buy up more stock, usually leading to a sudden spike in the share price. Though this style eschews the long-term viability of an operation, it has regularly provided him with a sizable pile of short-term winnings.  

Fresh Additions, Growing Influence

However, his hands-on approach to changing management decisions means that Icahn has to hold onto his positions for periods far exceeding those of the average investor. For instance, no new additions were made to his holdings over the last quarter. But he did increase his position in three holdings while offloading four companies.

Icahn increased his holding in Icahn Enterprises by buying up 2.9 million additional shares. Also, he widened his stake in supplements seller Herbalife Ltd. (HLF - Free Report) and care rental major Hertz Global Holdings, Inc. (HTZ - Free Report) . On the other hand, Icahn substantially reduced his holdings in PayPal Holdings, Inc. (PYPL - Free Report) and Freeport-McMoRan Inc. (FCX - Free Report) and cut his stake in Nuance Communications, Inc. (NUAN - Free Report) , though he remains one of the largest shareholders of the speech recognition company.

Our Choices

Icahn’s inclination for actively influencing the behavior of company boards and CEOs means that his approach remains risky. Certainly, it has reaped rich dividends, a trend which is likely to continue given his influence in the new administration. However, there is still no guarantee that he’ll be able to force all of the companies he holds to behave in the manner that he wants.

This approach also leads to a portfolio which can remain unchanged for fairly long periods, in his case for at least 18 months. Instead, individual investors would be better off holding select top ranked stocks from the various industries which make up his holdings. A Zacks Rank #1 (Strong Buy) is a clear indicator that the stock will outperform the market over the next 1-3 months. However, picking winning stocks may be difficult.

This is where our VGM score comes in. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select winners. However, it is important to keep in mind that each Style Score will carry a different weight while arriving at a VGM score. 

We have narrowed down our search to the following stocks, each of which has a Zacks Rank #1 and a good VGM score. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Leucadia National Corporation is a diversified financial services holding company principally engaged in personal and commercial lines of property and casualty insurance, life insurance, banking and lending and manufacturing.

Leucadia National has a VGM Score of A. The company has expected earnings growth of more than 100% for the current year. Its earnings estimate for the current year has improved by 13% over the last 30 days. The stock has returned 37.6% over the last six months, outperforming the Zacks Diversified Operations sector, which has gained 6.9% over the same period.

Lundin Mining Corporation is a rapidly growing, diversified base metals mining company with operations in Portugal, Spain, Sweden and Ireland.

Lundin Mining has a VGM Score of A. The company has expected earnings growth of more than 100% for the current year. Its earnings estimate for the current year has improved by 26.9% over the last 30 days. The stock has returned 49.9% over the last six months, outperforming the Zacks Mining - Non Ferrous sector, which has gained 18.3% over the same period.

Lear Corporation (LEA - Free Report) is a leading global supplier of automotive seating systems, electrical distribution systems and electronics.

Lear Corp has a VGM Score of A. The company has expected earnings growth of 10.4% for the current year. Its earnings estimate for the current year has improved by 1% over the last 30 days. The stock has returned 22.3% over the last six months, outperforming the Zacks Automotive - Original Equipment sector, which has returned 18.4% over the same period.

First Data Corporation is a commerce-enabling technology and solutions company.

First Data has a VGM Score of B. The company has expected earnings growth of 23.3% for the current year. The forward price-to-earnings (P/E) ratio for the current financial year (F1) is 12.19, lower than the industry average of 18.60. The stock has returned 20% over the last six months, outperforming the Zacks Business - Services sector, which has declined 7.3% over the same period.

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