Icahn Cozies Up to WebMD

The wrenching volatility in equity markets has certainly not scared off
billionaire investor Carl Icahn. If anything, the environment has been a big
opportunity to pick up some good values. To this end, he has made aggressive
investments in companies like Clorox (NYSE: CLX ) and Oshkosh (NYSE: OSK ). But
now Carl is going dot-com he disclosed an 8% stake in medical web site WebMD
(Nasdaq: WBMD ). Often, Icahn takes an activist approach with his investments,
trying to get management to restructure operations or sell out. However, in the
case of WebMD, it looks like he is mostly interested in the long-term potential
of the company. But Icahn's federal filing did indicate that there may be some
"conversations" with management from time to time. Hes never been shy. Why
the attraction to WebMD? In terms of the consumer healthcare market, the company
is the clear leader. Besides its flagship Webmd.com site, the company also has
properties like MedicineNet, eMedicineHealth and RxList. Overall traffic comes
to about 100 million visitors a month and 2.2 billion page views. But WebMD also
has strong positions in other segments. One is for the professional market,
which is called Medscape, which has 2.5 million physician visits a month.
WebMD's business model is to attract advertising dollars, and the good news is
that the secular trends look bright. Of the $30 billion spent on promoting and
marketing in the U.S. medical market, less than 5% of that is online. It seems
inevitable that this percentage will continue to increase. In fact, a big driver
is the large number of drugs that will go lose patent protection during the next
few years. Pharmaceutical companies will have to get more aggressive with their
marketing. Despite all this, shares of WebMD have lagged this year. Since early
May, the stock price has fallen to $36 from $58. The main problem has been
delays in ad buys from customers. Part of this has been from the slow economy,
but pharmaceutical companies also have had to deal with longer regulatory
reviews. However, for an investor looking for a growth play on healthcare, WebMD
does look like a good option. What's more, the valuation is affordable, with a
price-to-earnings ratio of 22. WebMD has also been aggressively buying back its
shares. Icahn may not need to get aggressive with management. He may be able to
just wait until the market realizes the long-term value of WebMD. Tom Taulli
runs the InvestorPlace blog "IPO Playbook," a site dedicated to the hottest
news and rumors about initial public offerings. He is also the author of "All
About Short Selling" and "All About Commodities." Follow him on Twitter
@ttaulli . As of this writing, he did not own a positioning any of the stocks
named here.