Easy monetary policy may seem fun at first, but it has consequences.
While asset prices rose in 2020 and 2021, they retreated significantly in 2022. Meanwhile, inflation remains near 40-year highs and the Fed needs to raise interest rates aggressively to bring price levels under control.
“We printed too much money and just thought the party would never end. And the party’s over,” billionaire investor Carl Icahn tells MarketWatch’s Best New Ideas in Money Festival via telecast.
Still, while many investors suffered painful losses in 2022 — the S&P 500 had its worst first half since 1970 — Icahn is not one of them. At his company, Icahn Enterprises, the net asset value rose by about 30% in the first six months of this year.
Looking ahead, his outlook is not entirely optimistic.
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“The worst is yet to come,” Icahn says, while warning that “inflation is a terrible thing” and “you can’t cure it.”
However, he doesn’t suggest you should bail on the stock altogether.
“I think a lot of things are cheap and they’re going to get cheaper,” he says.
Given Icahn’s highly successful career as an investor, people want to know where he sees opportunity right now.
“I’m just curious which stocks look cheap and viable right now,” an audience member asked him during the question-and-answer session.
Icahn provided two names.
CVR energy (CVI)
Energy was by far the best performing sector of the S&P 500 in 2021, returning a total of 53% compared to the index’s 27% return. And that momentum carried over into 2022.
Year-to-date, the Energy Select Sector SPDR Fund (XLE) is up a solid 62%, in stark contrast to the broad market’s double-digit decline.
Icahn’s pick in the energy space is CVR Energy ( CVI ), which is primarily in the refinery business. He says the stock “is pretty cheap, even though it’s gone up a lot.”
According to the most recent 13F filing, Icahn held 71.2 million shares of CVR Energy at the end of September, worth about $2.06 billion at the time.
The position has served the billionaire investor quite well, as CVR Energy shares have jumped 126% year to date.
As you would expect from this kind of share price performance, the company is firing on all cylinders.
In the third quarter of 2022, CVR Energy brought in $2.7 billion in net sales, up from $1.9 billion in the prior period.
The business also became more profitable as the refining margin per barrel of total output improved to $16.56 in Q3, compared to $15.03 in the same period last year.
The company recently declared a special dividend of $1.00 per share – in addition to its regular quarterly cash dividend of 40 cents per share.
Ichan also likes the business because “you can’t build another refinery in this country.”
CVR Partners LP (UAN)
CVR Partners is a master limited partnership formed by CVR Energy to own, operate and develop its nitrogen fertilizer business.
While the two businesses are related — CVR Energy subsidiaries own 37% of CVR Partners’ total shares — CVR Partners is also publicly traded. Its symbol is UAN.
“[The] the fertilizer business to me is a great business today,” says Icahn.
CVR Partners’ manufacturing facilities primarily produce ammonia and ammonium nitrate (UAN) fertilizers, and these things are in high demand.
In the third quarter, the partnership’s average realized output price for UAN jumped 42% year-over-year to $433 per tonne. For ammonia, the average realized release price rose 65% year over year to $837 per tonne.
Unsurprisingly, CVR Partners is another star performer in this ugly market, as the stock is up 38% year to date.
It’s easy to see why the business is attractive to Icahn.
“You need fertilizer if you want to eat,” he says.
Indeed, if you want the best protection against all the uncertainties facing the world today, agriculture deserves serious consideration, even if he doesn’t understand anything about farming.
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