Just finished reading the entire Hindenburg piece on Icahn's eponymous company, Icahn Enterprises LP (IEP). Here is really the crucial question: does Hindenburg have a strong case? Why does IEP continue to trade so much above its net asset value (NAV): 218% at the time. After the stock fell to $32.57 from $51.48 after the report came out, the NAV premium is now 106%. Still the highest but Mario Gabelli's Gabelli Utility Trust is nipping Carl's heel at 103% now (when will Hindenburg do its report on Gabelli? 2 of his funds are among the top 5 in premiums commanded by closed-end funds.)
According to Hindenburg, the answer for the exorbitant premium commanded by IEP has to do with 2 reasons: (1) the Icahn name and mystique built on years of activist investing and corporate raiding career; and (2) the inordinately high dividend yield -- 15.5% prior to the fall and now even higher at 25%. The eye-popping dividend yield is hooking gullible retail investors in. There is the familiar culprit in Jefferies, which is Icahn's chosen investment banker for continuous offerings, bka at the money (ATM) offerings. However, whenever you wanna confuse and addle retail investors, there are these paper mills that spew misinformation: we're talking about low-quality investing sites tailored to the retail money like Motley Fool, InvestorPlace, YahooFinance and another site which I had never heard of before, Income Investors.
Remember, "dividend investing" has been the mantra for retiring baby-boomers that want to live off of qualified dividends. They typically gravitate to income mutual funds or dividend aristocrat ETFs like SCHD, VYM, VIG and COWZ. None of these mainstream ETFs are in IEP but it's not surprising to find smaller and obscure names like Global X SuperDividend U.S. ETF and Global X Guru Index ETF as holders of IEP.
In July 2022, that was only 10 months ago, the king of retail bullsheet site Motley Fool was gushing that IEP was topping the total return of Buffett's Berkshire shares: "IEP is a rock solid dividend play with an all star manager at the helm, making it a must own stock in this turbulent market." Motley Fool followed that up with another puff piece in October 2022, which gushed that IEP has “ultra-high dividend yields, fundamentally strong businesses, and a proven ability to generate healthy levels of free cash flows in an uncertain economic environment.” How would Motley Fool know IEP has fundamentally strong businesses?
Another retail site InvestorPlace, was promoting IEP among 3 stocks to buy “with your social security increase” because of its 14.8% dividend at the time. Another retail site devoted to income investing, Income Investors, put out this red-lipstick-on-pig-lips marketing pitch: "If you are an income hog who wants to see your underlying investment rise, IEP might be a smart option right now"! Who is not an income hog?
Do these sites even know how difficult it is to value closed-end funds like IEP that disclose limited details on valuation metrics used? But per Hindenburg, the guiltiest party is still Jefferies, which is blatantly trying to hook retails investors in with its ponzi scam of continuous ATM offerings. Here is how the ponzi scam works: Jefferies has helped to sell $1.7 billion in IEP units to support dividend payments. This is possible because Icahn, who owns 85% of IEP, is taking dividends in units, not cash. In other words, the existing investors of IEP, i.e., the 15%, are being paid with the retail cash inflow from the offerings while the new ones will wait their turn. It's the greater fool theory applied to a dividend aristocrat as IEP does not have the FCF to pay dividends; Jefferies, through its ATM offerings, is enabling the payout to the next fool who will, at some point, end up holding the bag.
So why does Hindenburg think Icahn and Jefferies are specifically targeting retail investors? Aren't all investors, including institutional, pension funds, hedge funds, ETFs all into income investing? There isn't a single noteworthy institutional investor in IEP, except passive ETFs and retail-oriented investors like Mirae Asset Global Investments Co., Ltd. Plus not one serious research house is covering IEP except Jefferies.
And for many retail investors, the Icahn name still carries mystique: a titan of Wall Street who drives a hard bargain with management to walk away with windfalls and premiums. However, it seems Icahn really isn't very good at running businesses or picking stocks like Buffett or Munger. He's really only good at acting irascible, agitating for shareholder value and browbeating management, not creating or even managing value.
Submitted May 04, 2023 at 05:44AM by FastEddie354 https://ift.tt/HWL6Gtp
