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Billionaire Carl Icahn warns that you can’t cure hot inflation. But he prefers to pick these 2 ‘cheap and viable’ stocks to protect


'The worst is yet to come': Billionaire Carl Icahn warns that you can't cure red-hot inflation.  But he prefers to pick these 2 'cheap and viable' stocks to protect

‘The worst is yet to come’: Billionaire Carl Icahn warns that you can’t cure red-hot inflation. But he prefers to pick these 2 ‘cheap and viable’ stocks to protect

Loose monetary policy may seem interesting at first, but it has consequences.

Although asset prices skyrocketed in 2020 and 2021, they fell dramatically in 2022. Meanwhile, inflation remains near 40-year highs and the Fed must raise rates aggressively to bring the price level under control.

“We printed too much money and just thought the party would never end. And the party’s over,” Billionaire investor Carl Icahn said at MarketWatch’s Best New Ideas for Monetization Festival via a telemetry feed.

However, although many investors have suffered heavy 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, net worth has increased by about 30% in the first six months of this year.

Looking ahead, his outlook isn’t exactly optimistic.

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“The worst is yet to come,” Icahn said, warning that “inflation is a terrible thing” and “you can’t cure it.”

That said, he’s not suggesting that you underwrite the stock entirely.

“I think a lot of things are already cheap and they are going to get cheaper and cheaper,” he said.

Given Icahn’s wildly 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,” one audience member asked him during a Q&A session.

Icahn offers two names.

CVR Energy (CVI)

Energy is by far the S&P 500’s best performing sector in 2021, delivering a total of 53% against the index’s 27% return. And that momentum has lasted until 2022.

Year-to-date, the Energy Sector SPDR Fund (XLE) is up 62%, in stark contrast to the broader market’s double-digit decline.

Icahn’s choice in the energy sector is CVR Energy (CVI), which primarily operates in the refinery business. He said the stock is “quite cheap, even though it’s gone up a lot.”

According to the latest 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 well, with shares of CVR Energy up 126% year-to-date.

As you would expect from this kind of stock price performance, the company is operating at full capacity.

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In the third quarter of 2022, CVR Energy brought in $2.7 billion in net sales, up from $1.9 billion in the same period a year earlier.

The business was also more profitable as refining margins on total throughput barrels improved to $16.56 in the third quarter, compared with $15.03 in the same period last year.

The company recently announced a special dividend of $1.00 per share — in addition to its usual quarterly cash dividend of 40 cents per share.

Ichan also likes the business because “you can’t build another refinery in this country.”

Partner CVR LP (UAN)

CVR Partners is a general limited partnership formed by CVR Energy to own, operate and grow its nitrogen fertilizer business.

Although the two entities are related — CVR Energy subsidiaries own 37% of CVR Partners’ common unit — CVR Partners is also publicly traded. Its ticker symbol is UAN.

“[The] For me, the fertilizer business today is a great business,” said Icahn.

CVR Partners’ manufacturing facilities primarily produce ammonia and urea ammonium nitrate (UAN) fertilizers, and these are in high demand.

In Q3, the counterparty’s average strike price for UAN increased 42% year-on-year to $433/ton. For ammonia, the average actual gate price increased 65% year-on-year to $837/ton.

It’s no surprise that CVR Partners is another stellar performer in this ugly market, with shares up 38% year-to-date.

It’s easy to see why the business appealed to Icahn.

“You need fertilizer if you want to eat,” he said.

Indeed, if you want the last hedge against all the uncertainties facing the world today, agriculture deserves serious consideration, even if you don’t know anything about agriculture.

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This article is for information only and should not be construed as advice. It is provided without warranty of any kind.

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