Copy Icahn? Buy Xerox

04/04/2016 7:00 am EST

Focus: STOCKS

James Pearce

Director of Research, Investing Daily

Billionaire investor Carl Icahn has been building a large position in this new addition to our model portfolio, explains Jim Pearce, editor of Personal Finance.

Xerox (XRX) is a company I got to know well from 1995 to 2005 when I worked as a financial planner for its credit union.

The company downsized aggressively during that time, laying off thousands while selling most of its tangible assets to raise cash.

At its peak in 1999, its share price broke the $60 mark before plunging below $5 only two years later. That breathtaking fall devastated the fortunes of many Xerox employees.

Since then, the share price has traded in a fairly narrow range, between $5 and $20. Only a year ago it was above $14 before gradually stepping down to its current $10 level.

That means a return to where it was this time last year would represent a 40% return, a bargain even my father would love.

Of course, that assumes its share price will recover, so why do we think it might? For starters, there’s Icahn’s involvement.
That’s almost always a precursor to his activist “encouragement” for a company to create more shareholder value by reorganizing.

In this case, Xerox recently announced that it would split into two separate, publicly traded entities, one centered on technology and hardware and the other on its services and outsourcing division.

I have no idea how it will work out, but I think Icahn’s influence could be the catalyst that sends Xerox stock higher.

It won’t happen overnight, but its forward dividend yield of more than 3% appears safe and should satiate shareholders until the company’s divestiture is complete.  For that reason I am adding Xerox to our buy list.

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By Jim Pearce, Editor of Personal Finance

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