Energy stocks have been largely left behind in the recent stock market rally – except for those with interest from activist investors like Carl Icahn.
You see, concerns about global demand as well as political pressure to focus on alternative energy have weighed on energy stocks. So have the low price and oversupply conditions in the natural gas markets.
Many of these energy stocks trade at what seem to be very low prices compared with the assets owned by the corporations and their future prospects.
This has attracted the attention of many activist investors looking to force the share price to unlock the real value of the underlying corporation.
One of the best-known activist investors, Carl Icahn, has accumulated several positions in leading energy companies in the past year because of low prices and under-valuations.
Take, for example, what Icahn's done with CVR Energy Inc. (NYSE: CVI).
Icahn owns 83% of CVR, a refiner that has seen its stock price soar recently as refining margins have improved. The company also has a fertilizer business that is a major beneficiary of lower natural gas prices.
The stock has better than doubled in the past year so it would be foolish for investors to chase the shares now.
But CVR does serve as an example of the sizable returns Icahn is looking to achieve in his foray into additional energy investments, like the following two stocks he's been accumulating.
These Energy Stocks are Icahn's Latest Targets
Icahn is one of the largest shareholders, with a stake of almost 9%, in the beleaguered oil and gas leader Chesapeake Energy Corp. (NYSE: CHK).
Along with Mason Hawkins of Southeastern Asset Management, Icahn has pressured the company to reduce debt and to sell non-core and less-productive assets in a bid to increase the share price.
The activist investors have forced changes on the board and forced out longtime controversial CEO and Chairman Aubrey McClendon.
Chesapeake is looking to increase production and decrease debt levels and has been selling assets in the past few months. Although the stock is higher so far in 2013, it still sells for less than the value of its assets and at less than one-third of its previous peak of $66.78 a share in 2008.
Icahn also has been accumulating shares of another controversial energy name.
Transocean Ltd. (NYSE: RIG) is one of two companies blamed for the explosion of the Deepwater Horizon rig that caused the Gulf Oil spill.
Although the rig was owned by Transocean it was operated by BP PLC (NYSE: BP) and courts have ruled that the bulk of the liability belongs with BP and not Transocean.
In spite of that, the RIG stock price has languished as investors have avoided the shares.
Transocean is the largest offshore drilling contractor in the world. The company has a fleet of 134 drilling rigs with an emphasis on deep-water drilling rigs. Transocean recently divested 38 shallow-drilling rigs to a private equity investor for total compensation of $1.05 billion to further concentrate on deep- and ultra-deep-water drilling activity.
At the end of January, Icahn announced that he now owned 5.4% of the company and was urging management to use some of its more than $4 billion in cash to pay a special dividend of $4 a share.
Energy stocks are out of favor on Wall Street and that is going to make them in favor with activist investors until the tide turns. Following successful activist investors and their foray into the oil patch could mean big payoffs for attentive investors.
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