Chesapeake Energy Corp.'s (NYSE: CHK) stock price rose 4.6% overnight - thanks to Carl Icahn. The spike came after the billionaire investor announced last night he increased his stake in the company to 73 million shares - up from 66.4 million in December.
On March 11, Carl Icahn's three holdings - High River LP, Icahn Partners LP, and Icahn Partners Master Fund LP - collectively bought 6.6 million CHK shares for $14.15 each. Bloomberg reported that the purchase brings Icahn's stake in the company from 9.9% to 11%. That's just short of Southeastern Asset Management Inc.'s 11.1% stake, Chesapeake's largest holding.
That means Icahn bought CHK when it was trading at lows not seen since 2004. The CHK stock price has fallen almost as much as oil prices in the last year. The Oklahoma City-based company is down 39.5% since last March amid quarter-over-quarter earnings losses.
But even with these struggling share prices, Icahn loves energy companies.
"I believe a great amount of profit in the next few years will be made by those who hold positions in energy companies," he told Forbes yesterday. "However, I also believe that oil prices will continue to decline in the near term."
Energy companies likely contributed to Icahn's revenue dip last year. Icahn Enterprises LP (Nasdaq: IEP) reported full-year 2014 revenue of $19.2 billion - a 7.2% decrease from $20.7 billion in 2013.
Icahn has held a position of leverage with Chesapeake for several years now. In May 2012, he paid $785.3 million for 50 million CHK shares. That was 7.56% of the company's outstanding shares at the time. A year before that, Icahn persuaded CEO Aubrey McClendon to sell Chesapeake's stake in the Fayetteville Shale for about $5 billion.
The CHK stock price rose as high as $29.50 a share in June 2014 before falling oil slammed the company.
Chesapeake also announced yesterday it was cutting its 2015 drilling budget. Company execs said they have cut the budget by $500 million and will spend $3.5 billion to $4 billion drilling wells. It will operate 25 to 35 rigs, down from 64 last year.
Now the big question is: Does Icahn's buy-in make CHK stock a "Buy" for investors?
CHK Stock Price and Icahn
Icahn moves stocks.
"Icahn is someone well worth watching because he votes with his money," Money Morning trading expert Shah Gilani said in October 2013 after Icahn published a letter to Apple CEO Tim Cook about buying back shares.
On Aug. 13, 2013, Icahn tweeted that he held "a large" position in Apple Inc. (Nasdaq: AAPL). AAPL stock jumped 5% that day. Netflix Inc. (Nasdaq: NFLX) spiked 14% on Oct. 31, 2012, when a regulatory report revealed Ichan owned 10% of NFLX shares.
"Carl also pulls in other institutional investors who follow him and certainly don't want to be on the other side of his bets," Gilani said in 2013. "Ask Bill Ackman [who countered Icahn's bullish bets on Herbalife Inc. with ultimately losing bearish bets of his own] about being on the other side of Carl's wagers. In other words, Carl creates momentum."
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In this case though, Icahn isn't making an aggressive move into Chesapeake stock. He's buying more shares at a bargain. Still, investors liked the move. They helped push the CHK stock price up 1.1% today to $14.26.
And any more CHK share-buying from Icahn will attract more retail investor money.
Analysts have a one-year price target for CHK stock at $19.34 - a 36% climb from where it is now.
Investors can also benefit from Icahn's more aggressive activist investing - but don't buy CHK stock for that.
You see, activist investors' influence spreads across many sectors. Last fall, Icahn won three board seats at Hertz Global Holdings Inc. (NYSE: HTZ). He also pushed Apple in 2013 to dish out bigger dividends and buy back stock.
Retail investors can profit from their moves without directly investing in the stocks activists affect. There are several exchange-traded funds (ETFs) that track their activity, doing all the heavy lifting while you enjoy the gains.
We told our readers about two back in September - one of which was named a "Category King" by The Wall Street Journal and has shot up 6.1% since then. The other ETF is also up 3.6% since we first recommended it...continue reading here...
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