Follow in Icahn's Footsteps to Survive This Recession

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Many investors are waiting on the sidelines for better opportunities to buy stocks. This list includes the likes of Warren Buffett (Trades, Portfolio) and Charlie Munger (Trades, Portfolio) as well, which has led to confusion among investors as stocks look cheaper than they were a few months ago. Carl Icahn (Trades, Portfolio), on the other hand, has given a clear indication to investors with his recent actions. The guru has a reputation for making bold moves, and the latest data suggests that he is living up to his reputation.” data-reactid=”12″>Many investors are waiting on the sidelines for better opportunities to buy stocks. This list includes the likes of Warren Buffett (Trades, Portfolio) and Charlie Munger (Trades, Portfolio) as well, which has led to confusion among investors as stocks look cheaper than they were a few months ago. Carl Icahn (Trades, Portfolio), on the other hand, has given a clear indication to investors with his recent actions. The guru has a reputation for making bold moves, and the latest data suggests that he is living up to his reputation.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="The guru believes the troubles are not over yet” data-reactid=”19″>The guru believes the troubles are not over yet

Despite the uncertainty surrounding the prospects for the global economy, American markets have continued to recover from the bottom reached on March 23. There was significant volatility, but the general direction has been positive in the last few weeks. However, Icahn says this optimism will not last long as the market is still overvalued. In an interview with Bloomberg, the guru said, “You cannot really justify the earnings multiple of 17. Short-term, you may have some big downdrafts.”

This serves as a warning for investors who are rushing back to risky assets such as equities. Similar to Buffett, Icahn is most likely holding on to billions of dollars in anticipation of another correction. But the guru is far from being inactive, which was evident from his latest remarks regarding the oil crash.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Icahn has purchased "negative oil"” data-reactid=”22″>Icahn has purchased “negative oil”

The price of West Texas Intermediate crude oil famously entered negative territory for the first time in history on April 20. While many investors were left with no option but to wonder, Icahn sprung into action to buy as much cheap oil as he could. During a call with Bloomberg News on April 25, he said, “We made some money on it (oil crash). We did get a fair amount.”

As he explained later in the interview, the bet on negative oil prices was made through CVR Energy Inc. (CVI), one of his largest holdings. According to data from Bloomberg, the company, at the direction of Icahn, has tried to purchase 1 million to 2 million barrels of oil as prices plunged deep into negative territory. CVR, which specializes in petroleum refining activities, benefits from low energy prices as oil is used as an input in their process. An investor, however, should not jump to the conclusion that shares of this company present an attractive opportunity. Many other factors could contract the margins of the oil refinery industry in the United States, such as the significant decline in demand for gasoline, diesel and jet fuel resulting from the global lockdown.

The key here is to understand how the most successful investors are doubling down on whatever opportunity is presented to them, even though market conditions are seen as unfavorable by many retail investors.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="The path to recovery and characteristics of strong companies” data-reactid=”26″>The path to recovery and characteristics of strong companies

Analysts, economists and many investors agree on one thing; the global economy will return to normalcy. But the important question is how long it will take for this to happen. The World Bank, the International Monetary Fund and the Federal Reserve agree that 2021 could be one of the best years for the global economy on record. However, it’s important to dive deep to gauge a measure of which sectors and asset classes will post the best returns.

First, the IMF expects emerging economies to weather the recession better than their developed peers. This is primarily because many developing nations depend on their local industries to generate the bulk of the gross domestic product. During the global financial crisis of 2008, many of these high-growth regions posted positive economic growth due to this trend. Since then, however, globalization has taken effect at a much larger scale, tying the success of many Asian and Latin American countries to that of their major trade partners. This is bad news for emerging nations at this juncture, but prudent investors should ideally capitalize on this opportunity to gain exposure to high-growth regions. The pace of recovery will not be the same across every region.

Second, companies with cash-rich balance sheets are in a stronger position in comparison to companies in poor financial health. The inability to secure funding during these trying times could lead to bankruptcies. For instance, during the global financial crisis of 2008, the number of companies filing for bankruptcy in the U.S. reached a record high according to the Administrative Office of the United States Courts.