Easy monetary policy may seem fun at first, but it has consequences.
While asset prices soared in 2020 and 2021, they retreated substantially in 2022. Meanwhile, inflation remains near 40-year highs and the Fed needs to raise interest rates aggressively to control price levels.
“We printed too much money and thought the party would never end. And the party is over,” billionaire investor Carl Icahn says Wednesday at MarketWatch’s Best New Ideas in Money Festival via remote feed.
Still, while many investors suffered painful losses in 2022 (the S&P 500 had its worst first half of the year since 1970), Icahn is not one of them. At his company Icahn Enterprises, the net worth increased by about 30% in the first six months of this year.
Looking ahead, his outlook is not exactly optimistic.
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“The worst is yet to come,” says Icahn, while warning that “inflation is a terrible thing” and “it cannot be cured.”
That said, it’s not suggesting you should drop the stock entirely.
“I think a lot of things are cheap and will get cheaper,” he says.
Given Icahn’s successful career as an investor, people want to know where he sees opportunity right now.
“I’m just curious about what stocks look cheap and viable right now,” an audience member asked him during the question-and-answer session.
Icahn gave two names.
CVR Energy (CVI)
Energy was by far the best-performing sector in the S&P 500 in 2021, with a total return of 53% versus the index’s 27% return. And this momentum has been maintained until 2022.
Year to date, the Energy Select Sector SPDR Fund ( XLE ) is up a solid 35%, 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 been up a lot.”
CVR Energy shares are up 50% year-to-date and 74% over the past 12 months.
As you’d expect from this kind of share price performance, the company is firing on all cylinders.
In the second quarter of 2022, CVR Energy generated $3.1 billion in net sales, up from $1.8 billion in the year-ago period.
The business also became more profitable as refining margin per barrel of full yield improved to $26.10 in the second quarter, a big increase from $6.72 in the same period last year .
The company recently declared a special dividend of $2.60 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.”
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CVR Partners LP (UAN)
CVR Partners is a master limited partnership created by CVR Energy to own, operate and grow its nitrogen fertilizer business.
Although the two entities are related, CVR Energy affiliates own 37% of the common units of CVR Partners, CVR Partners is also publicly traded. Its symbol is UAN.
“[The] The fertilizer business, to me, is a big business today,” Icahn says.
CVR Partners’ manufacturing facilities primarily produce ammonia and urea ammonium nitrate (UAN) fertilizers, and these things are in high demand.
In the second quarter, the partnership’s average realized price for UAN soared 134% year-on-year to $555 per tonne. For ammonia, the average realized gate price increased 193% year-over-year to $1,182 per tonne.
Unsurprisingly, CVR Partners has been another star performer in this ugly market, with shares up 29% year to date.
It’s easy to see why the business appealed to Icahn.
“You need fertilizer if you want to eat,” he says.
In fact, if you want the ultimate hedge against all the uncertainties facing the world today, agriculture deserves a serious look, even if you know nothing about agriculture.
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This article provides information only and should not be construed as advice. It is provided without any warranty.
