Buffett Beater's Best Bets

04/09/2013 10:40 am EST


Thomas Aspray

, Professional Trader & Analyst

While the market's current trend looks a bit wobbly, last week's pullback may have been enough for the uptrend to resume, as MoneyShow's Tom Aspray takes a technical look at a famed corporate raider's picks for bargains.

Stocks put in another resilient performance Monday as they spent most of the day in negative territory, but were able to close higher, with the S&P 500 gaining 0.63%. The Dow Jones Transportation and S&P 600, which had been underperforming were stronger, up 0.90% and 0.91% respectively.

Monday's action, when combined with last Friday's impressive turnaround, does turn the focus back on the upside for the major averages but clearly the market is not as healthy internally as it was a few months ago. Only a few stocks made new highs so the yellow caution flags are still out. The futures are higher before the opening.

Still, it would not take much for the Dow Industrials or S&P 500 to surpass their recent highs. One of Monday's strongest stocks was Icahn Enterprises LP (IEP), which was up over 10% after a bullish article in Barron's. Its very attractive yield of 7.2% also helped.

Many might be surprised that IEP, according to Morningstar, was up an annualized 18.4% over the past ten years through last November 30. This was over 12 points better than Berkshire Hathaway (BRK-B) or the S&P 500.

Besides IEP, which is a master limited partnership, do other Icahn picks look attractive from a technical standpoint?

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Chart Analysis: Icahn Enterprises LP (IEP) has a market cap of $6.62 billion and hit a high of $90.75 in mid-February. Its second largest holding is Icahn Capital, Icahn's hedge fund, which is now closed to outside investments.

  • IEP dropped below its 20-week EMA at $55.40 over the past two weeks before Monday's surge as it closed at $61.30.
  • IEP is still below the quarterly pivot at $64.86 and a weekly close above this level will confirm that the correction is over.
  • There is further resistance now at $69.60-$74.15.
  • The relative performance moved through major resistance, line b, in early January.
  • The RS line has dropped down to the breakout level and is trying to turn up. It is still below its WMA.
  • The OBV broke its support, line c, in early March as there was one week where 2.4 million shares were traded.
  • There is initial support now in the $57.25-$58.50 area.

American Railcar Industries (ARII) is an $897 million rail car designer and manufacturer that has a yield of 2.5%.

  • It came close to the 38.2% Fibonacci retracement support at $38.97 last week, which is typically a good entry level.
  • The 50% support stands at $36.43, which also corresponds to the January highs.
  • Monday's close was just below the quarterly pivot at $40.88.
  • The relative performance completed its bottom formation in early 2013 and just tested its uptrend, line e, last week.
  • The RS line did confirm the recent highs and the weekly RS (not shown) is also positive.
  • Heavy volume last week dropped the OBV below its WMA and support at line f.
  • There is initial resistance now at $42-$43.20 and then at $45.15.

NEXT PAGE: A Very Liquid Icahn Bet


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Transocean Ltd. (RIG) is an $18.32 billion oil and gas exploration and drilling company. Icahn's hedge fund recently purchased 1.56% of its stock and has been critical of their management.

  • RIG had a February high of $59.61 and at last week's low of $50.34 was down 15.5% from its high.
  • The 50% Fibonacci support level is at $49.44, which is just below last week's low.
  • The more important 61.8% support is at $47.04 with the long-term uptrend, line a, at $46.
  • The weekly relative performance dropped below its WMA in the latter part of February.
  • The RS line is now testing its uptrend, line b.
  • The on-balance volume (OBV) surged in early January and tested the highs from early 2012.
  • The weekly OBV is still holding above its WMA and is well above the longer-term support at line c.
  • There is first resistance at last week's high of $52.03 with the quarterly pivot at $52.06.

What it Means: Of the other holdings in Icahn Enterprises LP (IEP), many are too thin to invest in or are totally owned. Some of the holdings of his hedge fund, Icahn Capital, like Transocean Ltd. (RIG), are more liquid. Others like Herbalife Ltd. (HLF) are quite controversial as Icahn has had a well publicized dispute with fellow hedge fund manager Bill Ackerman. I try to avoid stocks that attract this type of attention.

I would not chase IEP but would look for a pullback after the Barron's boost.

I also like American Railcar Industries (ARII) as the long-term trend in the transportation sector still looks positive. If Transocean Ltd. (RIG) retests last week's support, it should provide a good entry point.

How to Profit: For Icahn Enterprises LP (IEP), go 50% long at $58.36 and 50% long at $56.34, with a stop at $53.81 (risk of approx 6.1%).

For American Railcar Industries (ARII), go 50% long at $39.29 and 50% long at $38.64, with a stop at $36.23 (risk of approx 7%).

For Transocean Ltd. (RIG), go 50% long at $49.54 and 50% long at $48.84, with a stop at $46.33 (risk of approx 5.8%).

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