Icahn Enterprises (IEP): High-Dividend Stock or Risky Bet

Economic

Summary:

Is Icahn Enterprises (IEP) a high-reward opportunity or a risky gamble? Dive deep into Carl Icahn's company, analyze its high dividend, and understand the controversies. Decide if IEP fits your investment strategy.

Icahn Enterprises (IEP) is a company unlike many others. Led by the legendary activist investor Carl Icahn, the company's holdings are primarily concentrated in a single asset: itself. This unique structure and recent stock price volatility have sparked debate among investors. Let's delve into Icahn Enterprises, exploring its past performance, current situation, and future prospects.

A Company Owning Itself

Carl Icahn's Influence: Icahn Enterprises reflects the investment philosophy and holdings of Carl Icahn. As of March 31, 2024, Icahn himself held over 57.4% of the company's outstanding shares (around 429 million shares), giving him significant control over its direction.

Investment Strategy: Icahn Enterprises focuses on acquiring undervalued assets and pushing for changes to unlock their potential. This strategy can involve taking activist stances in companies IEP holds stakes in. The company currently has holdings in various sectors, including energy, automotive, and consumer goods, but the performance of these holdings directly impacts IEP's own stock price.

Past Performance and Recent Scrutiny

Historic Highs and Drastic Drops: Icahn Enterprises has a history of significant price fluctuations. In May 2023, the stock price reached highs near $29 per share. However, following increased scrutiny over the company's structure, concerns about the underperformance of some holdings, and a broader market downturn, the price has fallen dramatically, reaching $16.70 as of May 24, 2024. This represents a decline of over 42% in one year.

High Dividend Yield: Despite the stock price decline, Icahn Enterprises offers a very high dividend yield, currently exceeding 28%. In 2023, the company distributed over $4.70 per share in dividends. This is achieved through significant distributions from its holdings.

However, some analysts argue that this payout may not be sustainable in the long run, especially if the underlying holdings underperform or IEP needs to retain capital for future investments.

Current Situation: Analyzing the Debate

Bullish Arguments: Supporters of Icahn Enterprises point to Carl Icahn's long and successful track record as an investor. They believe his activist approach can unlock value in the company's holdings and drive future price growth. The high dividend yield is also seen as an attractive feature for income-oriented investors, especially in a low-interest-rate environment.

Bearish Arguments: Critics highlight the risks associated with a company so heavily reliant on a single investor (Carl Icahn) and a single asset (itself). They express concerns about the following:

Concentration Risk: The company's performance is heavily tied to Carl Icahn's investment decisions and the performance of a relatively small number of holdings. If Icahn makes a bad investment or the market value of the holdings declines, IEP's stock price could suffer significantly.

Sustainability of High Dividends: The high dividend payout may not be sustainable in the long term. If IEP needs to retain capital for future acquisitions or the underlying holdings generate less cash flow, the company might be forced to reduce or eliminate dividends, which could further impact the stock price.

Looking Ahead: Uncertainties and Future Considerations

Earnings Performance: The upcoming Icahn Enterprises Q2 earnings report (expected in August 2024) will be closely watched for any insights into the company's financial health, the performance of its holdings, and its future dividend policy.

Future Acquisitions: Icahn's future investment decisions will significantly impact IEP. Investors will be looking for signs of diversification or strategic acquisitions that could strengthen the company's portfolio and reduce its concentration risk.

Market Volatility: The broader market environment will also play a role. Economic downturns or fluctuations in specific sectors where IEP has holdings could lead to increased volatility in the stock price.

Conclusion: A High-Risk, High-Reward Opportunity

Icahn Enterprises presents a complex investment proposition. The high potential returns from successful activist campaigns and the attractive dividend yield are countered by significant risks associated with its concentrated ownership structure, reliance on a single investor's decisions, and the potential for future reductions in its high dividend payout. Investors with a high tolerance for risk and a long-term investment horizon who are comfortable with the unique structure of Icahn Enterprises may find it appealing. However, for more conservative investors, it's advisable to wait for a clearer picture of the company's future direction, the sustainability of its high dividend, and any potential diversification efforts before considering investment.

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Risk Warnings and Disclaimers

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Samantha Luan

Economic

Stocks

The Nikkei is forecast to trade at 40,750 at the end of this year, according to the median estimate of 16 analysts polled May 13-21, up from Tuesday's close of 38,946.93.

Gains have been capped recently as local companies issued modest earnings forecasts at the peak of earnings season this month.

The index has been hovering below 40,000 since the beginning of April after hitting a record intraday high of 41,087.75 on March 22.

"Many Japanese companies made conservative annual forecasts but they are expected to raise their outlook toward the end of the year, which will lift the Nikkei," said Tomochika Kitaoka, chief equity strategist at Nomura Securities.

"And expectations for further progress in corporate governance reform will also push up share prices," he said.

Share buybacks and unwinding cross-shareholders driven by the governance change were behind the index's rally. The Nikkei has risen 16.4 per cent so far this year, following a 28.2 per cent gain in 2023.

"The U.S. economy is strong and will remain strong even if (Donald) Trump wins the presidential election," said Yugo Tsuboi, chief equity strategist at Daiwa Securities, who expects the Nikkei to be at 43,000 at the end of the year.

An upturn in the global economy will help the Nikkei to hit 44,000 before retreating to 40,500 at the end of the year, said Hikaru Yasuda, chief equity strategist at SMBC Nikko Securities.

Uncertainties about the yen's move against the dollar has also hurt sentiment the Japanese stock market, but some strategists said the negative impact of the currency's possible gain against the dollar will be limited.

The yen fell to a 34-year low of 160.245 per dollar late last month, before rebounding sharply in what traders and analysts suspected was several rounds of yen-buying intervention by Japanese authorities.

"If the yen strengthens, foreign investors may sell the Nikkei. But I expect the Nikkei to be at 40,000 at the end of this year even as the yen rises to 142 yen to the dollar because earnings of Japanese companies are on the rise," said Masayuki Kubota, chief strategist at Rakuten Securities.

Strategists also said the Nikkei is unlikely to correct 10 per cent or more in the coming three months.

"There are some potential risks, such as a deterioration of the U.S. economy and the chip boom, as well as tensions in the Middle East, but unless these things occur, the Nikkei is unlikely to fall below 35,000," said Shingo Ide, chief equity strategist at NLI Research Institute.

Source:Reuters

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Risk Warnings and Disclaimers

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Samantha Luan

Central Bank

Economic

Monetary policy decisions from New Zealand and Indonesia are the main points of focus in Asia on Wednesday, as debate over the timing of the first U.S. rate cut ebbs and flows, and lofty equity markets consider their next step.

Asian stocks retreated on Tuesday, snapping a seven-day winning streak despite the relative calm in currency and bond markets. But Wall Street crept higher, with the Nasdaq reaching a new peak ahead of Nvidia's first-quarter earnings report.

The message on interest rates from a raft of Federal Reserve officials on Tuesday was patience. Indeed, it may be several months before policymakers are confident inflation is really falling back to target, allowing them to start cutting rates.

With many stock markets around the world at record or multi-year highs, a period of cooling may be inevitable. The MSCI Asia ex-Japan index on Tuesday slipped 0.9% - its biggest fall in over a month - while Japan's Nikkei lost 0.3%, and Hong Kong's Hang Seng shed more than 2%. New Zealand, Indonesia Set Rates; Nvidia Vigil Almost Over_1

New Zealand, Indonesia Set Rates; Nvidia Vigil Almost Over_1

After Morgan Stanley's Mike Wilson rowed back on his long-standing gloomy outlook for Wall Street on Monday, another prominent bear, JP Morgan's Marko Kolanovic, reiterated his view that U.S. stocks are too expensive and should head south.

He is much more upbeat on Asia, favoring Japanese and Chinese equities over U.S. markets. Japan is attractive because of inflation and monetary policy normalization, while measures to support the housing market, underweight investor positioning and cheap valuations are reasons to buy China.

While the world maintains its vigil ahead of AI darling Nvidia's results on Wednesday, investors in Asia digest two monetary policy decisions and other potentially exchange rate-moving data, including Japanese trade and South Korean producer price inflation.

New Zealand, Indonesia Set Rates; Nvidia Vigil Almost Over_2

The Reserve Bank of New Zealand and Bank Indonesia are both expected to leave their key interest rates on hold, at 5.50% and 6.25%, respectively, according to Reuters polls.

The RBNZ is only expected to cut its cash rate once this year, and probably not until the final quarter. Money markets are a bit more dovish, and are currently pricing in 45 basis points of easing by year-end. New Zealand, Indonesia Set Rates; Nvidia Vigil Almost Over_3

New Zealand, Indonesia Set Rates; Nvidia Vigil Almost Over_3

After stunning markets last month with an unexpected rate hike to support the rupiah, Bank Indonesia (BI) is expected to keep its seven-day reverse repurchase rate at 6.25% and hold it there for several months, or until the Fed cuts U.S. rates.

In a rare media briefing earlier this month, BI Governor Perry Warjiyo said current data shows there is no need to raise rates again, and the central bank is trying to strengthen the rupiah beyond 16,000 per dollar.

The rupiah closed trading on Tuesday at 15,990 per dollar. New Zealand, Indonesia Set Rates; Nvidia Vigil Almost Over_4

Here are key developments that could provide more direction to markets on Wednesday:

- New Zealand monetary policy decision

- Indonesia monetary policy decision

- Japan trade (April)

Source: Reuters

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Cohen

Political

Economic

The helicopter crash that killed Iranian President Ebrahim Raisi has sent shock waves around the Islamic Republic and the region.

But Raisi's death is not expected to bring major changes to Tehran's domestic and foreign policies, analysts say.

Supreme Leader Ayatollah Ali Khamenei, who has the final say in all major state affairs, and the powerful Islamic Revolutionary Guards Corps are the key centers of power in Iran, where the president's authority is limited.

"The death of Raisi, in itself, will not cause a significant shift in Iran's policies," said Hamidreza Azizi, a fellow at the German Institute for International and Security Affairs. "After all, the president is the second in command in the power hierarchy of the Islamic republic, and strategic directions are set by the supreme leader."

As president, Raisi oversaw a brutal crackdown on antiestablishment protests in 2022 and the tightening of the country's morality laws.

The real significance of the ultraconservative Raisi's death, experts say, is that it could set off a power struggle among the country's hard-liners.

The demise of Raisi, who was widely tipped to become the next supreme leader, could also complicate Khamenei's succession plans.

Raisi, a former judiciary chief, was a longtime protege of Khamenei, who was believed to be grooming him as his successor.

Sanam Vakil, director of the Middle East and North Africa program at the London-based Chatham House, said Raisi "fit the bill" to take over from Khamenei and even modeled his life on the 85-year-old supreme leader.

"[Raisi] was a loyal functionary willing to do the bidding of the supreme leader through multiple institutions," she said. "There are no obvious candidates that can tick a lot of boxes."

Raisi's death has left a vacancy to fill. Elections must be held within 50 days, according to Iranian law, leaving the clerical establishment scrambling to find a suitable replacement.

The early front-runners are speaker of parliament Mohammad Baqer Qalibaf and judiciary chief Gholamhossein Mohseni-Ejei.

Azizi said the next president could have "significant influence over the overall trajectory" of Khamenei's succession.

"As a result, this is going to lead to heightened intra-conservative competition to [become president]," he added.

Ali Vaez, the director of the Iran Project at the Brussels-based International Crisis Group, said the upcoming election offers an opportunity for the clerical establishment to "pursue a different course" by allowing a relatively competitive vote.

In 2021, Raisi won the presidential election by a landslide, in a vote that was widely seen as rigged. His victory consolidated the power of hard-liners, who assumed control of all three branches of government.

"But I suspect that the regime is dedicating all its efforts to preparing for a succession after Khamenei, striving to create homogeneous conditions at the top of the power pyramid, and not allowing any rivals into this circle," Vaez told RFE/RL's Radio Farda.

International Relations

Raisi’s death is unlikely to have any impact on the deepening ties between Iran and Russia, a relationship that has increasingly worried the West, analysts say.

Iran has supplied thousands of drones to Russia following its February 2022 invasion of Ukraine. The Iranian unmanned aircraft, known as the Shahed, has played a key role in the 27-month war, allowing Russia to devastate Ukrainian cities at a distance, including destroying critical infrastructure.

"It is unlikely that anything will change in relations between Russia and Iran. At least if a conservative remains president,” Ilia Kusa, an analyst at the Kyiv-based Ukrainian Institute of the Future, said on Facebook.

"The situational partnership between Russia and Iran is tied not so much to one person as to the international situation, poor relations with the West, and close ties at different levels," he said.

As for U.S.-Iranian relations, which have been tense for decades, the Biden administration does not expect any transformation with Raisi's death.

White House national security spokesperson John Kirby told reporters on May 20 that when it comes to Iranian policy, it is Khamenei who “calls the shots,” not the president.

“So we don't anticipate any change in Iranian behavior. And therefore the Iranians should not expect any change in American behavior when it comes to holding them accountable,” Kirby said.

Source：oil price

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Thomas

Economic

Stocks

Emboldened by China's latest measures and pledges to fix the weakest parts of its struggling economy, domestic investors are scooping up shares in a cheap stock market, while most foreign investors are hopeful but taking it slow.

Last week's sweeping measures to support the property sector, which authorities dubbed as historic, were the latest in a series of steps China has taken since February in a bid to boost consumption, funnel state money into priority sectors and underpin the stock market.

Share prices have rebounded from multi-year lows in February on signs of more official support. The benchmark Shanghai index has climbed more than 3% since reports of the property rescue surfaced on Thursday, taking its gains to a fifth in 3-1/2 months, though the rally stalled on Tuesday as investors awaited more details on how the funding would work. Hong Kong-listed Chinese shares are up nearly 38%.

Capital flow data shows that rally has primarily been driven by mainland investors returning to a market they abandoned during the pandemic years. Foreign money has been a trickle.

"To some extent, I think what's been announced isn't yet of a scale that is going to start putting a meaningful kind of tens of percentage points onto GDP," said Sunil Krishnan, head of multi-asset funds at Aviva Investors in London. "So, for investors that's a challenge."

Krishnan says his funds do not have any active positions in China but have exposure to commodities that will indirectly benefit if its property market recovers from a prolonged slump.

But Aviva will have to move from being bearish on China to a more neutral position, as "China policy does seem to be waking up to the realities of what's needed," he said.

The latest property measures seem pivotal as China's central bank and provincial governments jointly announced steps to buy unsold homes and ease mortgage rates, suggesting Beijing was intent on reviving the sector which once accounted for a fifth of the country's economic output.

Among those was a pledge by the People's Bank of China to set up a 300 billion yuan ($41.46 billion) relending facility for state-owned enterprises to purchase completed, unsold homes.

The numbers were "slightly underwhelming", but the intent to put "money to where their mouth is” was constructive, said Zhenbo Hou, a strategist at BlueBay Asset Management.

"They're no longer denying the problems. They're recognizing the issues. They're coming towards the market view on what the solutions should be… This explains why financial assets are responding in a positive way," Hou said. Bulls Beat a Path to China Stock Shop but Foreigners Dare Not Go In_1

Bulls Beat a Path to China Stock Shop but Foreigners Dare Not Go In_1

Flows

The series of steps to put a floor under markets that began with regulatory measures to curtail short-selling and measures to stimulate strategic technology sectors, raise pensions and subsidise housing, were aimed at getting Chinese consumers to spend again.

But foreign investors, looking for signs of a more sustainable economic turnaround, are keen for more stimulus, and flow data shows the hesitation.

An analysis of flows into 3,000-odd Japan-focused funds and a similar number of China ones on LSEG's Lipper database shows Chinese funds had net inflows this month, but investors have withdrawn $1.2 billion from China so far this year and put $18 billion into Japan.

Chi Lo, senior markets strategist at BNP Paribas Asset Management in Hong Kong, says people are discernibly less negative on China, but not ready to rotate cash out of other markets.

"We've seen some increase in allocation back to China but that's out of the spare cash the investors have at this point. They are still positive on Japan. They are still positive on India."

Most long-term money managers are waiting for breakthroughs in the still-sour Sino-U.S. relationship, particularly heading into the November U.S. presidential election, and bigger stimulus proposals, said Jason Hsu, chief investment officer at Rayliant Global Advisors.

While China's domestic investors have turned bullish, they have shown a preference for Hong Kong-listed shares, which are cheaper and likely to rise harder and faster if foreigners join the rally.

Mainland investors have pumped roughly $33 billion into Hong Kong stocks via the Stock Connect scheme. Data compiled by Ping An Securities shows mainland equity ETFs drew 23.6 billion yuan of inflows in April, 10 times that seen in March.

Yet, flows into China-focused global ETFs such as Krane Funds Advisors' KraneShares ETF and Blackrock's iShares China Large-Cap ETF remain tepid, having fallen for months.

KraneShares recommends being neutral or underweight on China.

Chief Investment Officer Brendan Ahern points to inflows into mainland-listed equity ETFs as evidence "Chinese investors are buying China".

George Maris, chief investment officer and global head of equities at U.S. Principal Asset Management which manages around $651 billion assets, said negativity on China had gone too far.

Maris is bullish on several sectors, including technology, and has re-allocated capital to China since September.

But a broad re-rating of Chinese equities by global investors still hasn't happened and wouldn't until markets rallied first, he said.

($1 = 7.2365 Chinese yuan renminbi)

Source: Reuters

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Samantha Luan

Central Bank

Economic

European Central Bank President Christine Lagarde indicated that an interest-rate cut is probable next month with the rapid gain in consumer-price growth now largely contained.

“It is a case that if the data that we receive reinforces the confidence level that we have — that we will deliver 2% inflation in the medium term, which is our objective, our mission, our duty — then there is a strong likelihood” of a move on June 6, she told Ireland’s RTE One in a television interview broadcast on Tuesday.

“I’m really confident that we have inflation under control,” she said. “The forecast that we have for next year and the year after that is really getting very, very close to target, if not at target. So, I am confident that we’ve gone to a control phase.”

A move when officials next set policy has been widely telegraphed. The deposit rate — which has been at a record high of 4% since last autumn — is expected to be reduced by a quarter point, with investors pricing another step of that size in September and also leaning toward a final 2024 cut in December.

Governing Council members refuse to commit to a certain rate path — a sentiment shared by Lagarde in the RTE One interview. Many though have indicated that market bets may be similar to their own thinking.

Commenting in a separate interview with Handelsblatt also published Tuesday, Bundesbank President Joachim Nagel urged caution after a likely first reduction.

“We should not cut rates hastily and jeopardize what we have achieved,” he said, adding that uncertainty is “still high.”

So “even if rates are lowered for the first time in June, that does not mean we will cut rates further” in subsequent meetings, Nagel said. “We are not on auto-pilot.”

Lagarde also warned of uncertainty, but was more circumspect.

“We have to be data dependent,” she said. “It’s a collective decision that is taken by all members of the Governing Council together, and it’s very difficult to prescribe or forecast a path after the first cut, if there is such a cut.”

ECB’s Lagarde Sees June Rate Cut With Inflation ‘Under Control’_1

The pace of euro-area inflation has slowed drastically, though it stalled at 2.4% in April and isn’t seen retreating to the ECB’s 2% goal until the second half of next year.

Lagarde said that her aim is “2%, 2%, 2% inflation down. Mission accomplished. That’s what I want to do.”

The ECB president also defended her institution’s track record — “we didn’t do a bad job” — though she acknowledged that rate increases in 2022 could potentially have commenced more quickly, citing the option of going “three months earlier.”

“We might have started a little earlier,” she said. “But I’m not sure the outcome would have been that different.”

Source：Bloomberg

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Cohen

Economic

Political

Yellen said at the start of a meeting with bankers that the Treasury's new authority to hit banks with secondary sanctions if they aid Russian military-related transactions had helped to frustrate Russia's efforts to procure goods needed for its war in Ukraine, but more work was needed.

"Russia continues to procure sensitive goods and to expand its ability to domestically manufacture these goods. We must remain vigilant and be more ambitious," Yellen said.

"I urge all institutions here to take heightened compliance measures and to increase your focus on Russian evasion attempts," Yellen said in prepared remarks for the meeting in Frankfurt.

In an unusually direct warning, she told the executives to police sanctions compliance among their banks' foreign branches and subsidiaries and reach out to foreign correspondent banking customers to do the same, especially in high-risk jurisdictions.

"Russia is desperate to obtain critical goods from advanced economies like Germany and the United States," Yellen said. "We must remain vigilant to prevent the Kremlin’s ability to supply its defense industrial base, and to access our financial systems to do so."

Yellen's warning comes shortly after the U.S. Treasury successfully pressed Austria's Raiffeisen Bank, the biggest Western bank in Russia to ditch a deal involving a Russian tycoon.

Earlier this month, Raiffeisen Bank International (RBI) dropped a bid for a 1.5 billion euro ($1.6 billion) industrial stake linked to Russian tycoon Oleg Deripaska after intense U.S. pressure.

The deal's collapse was a fresh setback for the lender, which faces criticism for its ties to Moscow more than two years since Russia's invasion of Ukraine. The pressure also underscored Washington's willingness to take European banks to task over their Russia ties.

Raiffeisen Bank International was warned by the U.S. Treasury in writing that its access to the U.S. financial system could be curbed because of its Russia dealings, a person who has seen this correspondence told Reuters.

On May 6, Deputy Treasury Secretary Wally Adeyemo sent a letter to RBI, expressing concern about RBI's presence in Russia as well as a $1.5 billion deal.

RBI's announcement followed weeks of pressure over its plan to buy a stake in construction group Strabag, a move designed to unlock bank funds frozen in Russia.

Yellen said the most concerning Russian sanctions evasion activity was coming through China, the United Arab Emirates and Turkey, but added that the Treasury "is working to disrupt evasion wherever we see it, from Central Asia to the Caucasus and throughout Europe."