Top 10 Icahn Capital Stocks: Amylin, Hain, And Clorox Shine

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Includes: BMY, CLX, DYN, FRX, GOOG, HAIN, LGF, MENT, MSI, TTWO
by: David Zanoni

Carl Icahn was educated at Princeton University and graduated with an A.B. in philosophy. In 1968 he formed a securities firm called Icahn & Company, which focused on risk arbitrage and options trading. He has taken on controlling interest in various companies, some of which include RJR Nabisco, Texaco, Western Digital (NYSE:WDC), and USX. He now runs a hedge fund named Icahn Capital. In this article I will discuss his top 10 holdings.

Motorola Solutions (NYSE:MSI)

Motorola produces a variety of communication products for enterprise and the government. These includes: analog and digital 2-way radios, wireless LAN & security products, voice and data communication devices, wireless broadband systems, mobility solutions for the government, utilities, transportation, healthcare, and manufacturing businesses. Motorola also makes barcode scanners, RFID infrastructure, imagers, smartphones, tablet devices, and digital video set-top boxes.

Motorola has a forward P/E of 14.41 and a PEG of 1.6. Its stock price of $40 trades at only a little more than 2 times book value per share, which is a nice value. It has a healthy profit margin of 15.34% and plenty of total cash - $6.63 billion. MSI pays a solid dividend of 2.1%. Combine this divvy with its five-year expected annual earnings growth of 10.45% and you should have a stock that beats the market by a couple percentage points yearly.

Clorox Company (NYSE:CLX)

This famous maker of consumer and institutional products is a steady predictable grower. Its cleaning products include: bleach, laundry additives, Formula 409, Tilex, S.O.S., Pine-Sol, Liquid Plumr, and Green Works. It also handles the following brands in its Lifestyle & Household segments: Burt’s Bees, Brita, Fresh Step, Glad, Hidden Valley, K.C. Masterpiece, and Kingsford.

Clorox is showing a fair value with a forward P/E of 15.23 and a PEG of 1.73. However, the stock trades at more than 102 times book value per share, which is not indicative of a good value. It did disappoint last quarter with negative earnings growth. However, it does pay a dividend of 3.5%, and if it can hit its expected annual earnings estimates of 9.33% for the next five years, it should provide a total annual yield of 12.83%.

Forest Laboratories (NYSE:FRX)

Forest Laboratories is a developer and manufacturer of branded and generic forms of ethical pharmaceuticals. Its products treat the following health issues: cardiovascular, anti-ineffective, central nervous system, endocrinology, labor preparation, pain management, and respiratory. Some of its products include: Lexapro, for depression; Namenda, for Alzheimer’s disease; Bystolic, for hypertension; and Daliresp, for severe COPD associated with chronic bronchitis and a history of exacerbations.

Forest Labs is also developing the following drugs: Ceftaroline, which completed Phase II clinical trial for the treatment of community-acquired bacterial pneumonia; Linaclotide, which is in Phase III clinical trial for chronic constipation; Cariprizine, which is in Phase III clinical trial for schizophrenia and other psychiatric conditions; and Radiprodil, which is in Phase III clinical trial for chronic pain and other central nervous system conditions.

Although Forest Labs has zero debt and a healthy balance sheet, it has expectations of negative earnings growth for the next five years. It is expected to grow earnings annually at -5.1% for the next five years. Next year’s earnings will probably bear the worst of the negative growth, as they are expected to be -67%. This is due to its large investment into the Research & Development process, which may be good for the long term if its pipeline drugs become FDA-approved and successful. You may want to wait before buying this one, as its stock price may fall further before turning around.

Motorola Mobility Holdings, Inc. (NYSE:MMI)

Motorola Mobility operates independently of Motorola Solutions, and therefore trades as a separate stock. MMI provides products and services for mobile and wire-line digital communication, entertainment, and information applications. It makes mobile devices such as smartphones based on the Android operating system, tablets, and Bluetooth accessories. It also provides home-based video, voice, and data solutions for service providers. It operates primarily in the U.S., China, Brazil, and Singapore.

MMI looks a little overvalued from its forward P/E of 27.37 and its PEG of 4.57. However, its stock price is trading at only 2.24 times book value per share, which shows a nice value. Once it returns to positive earnings, its P/E and PEG figures will lower to more attractive levels. MMI is expected to grow earnings annually at 16.14% for the next five years. I would wait to see two consecutive quarters of positive earnings growth before buying the stock.

Lions Gate Entertainment (NYSE:LGF)

Lions Gate is a global entertainment company that operates in business in two segments: motion pictures and television production. It distributes a library of over 13,000 titles of movies, TV episodes, and programs directly to retailers, rental kiosks, and TV channels. Its recent movies include: Warrior, Conan the Barbarian, and The Devil’s Double. Its current TV shows include: Nurse Jackie, Weeds, Mad Men, Running Wilde, and Blue Mountain State.

Lions Gate stock looks fairly valued right now with a forward P/E of 15.59 and a PEG of 1.3. The stock price of $6.86 is trading at 6.7 times book value per share. It has averaged negative earnings annually in the last five years of -18.89%, however it’s expected to grow earnings annually at 16.85% for the next five years. If it hits these estimates, the stock could rise to over $30 per share at the end of five years. At the end of August 2011, it was announced that Carl Icahn is selling his stake in Lions Gate.

Amylin Pharmaceuticals (AMLN)

Amylin produces drugs for the treatment of diabetes and obesity. Its FDA-approved diabetes drugs are: Byetta, for the treatment of Type 2 diabetes; and Symlin, for the treatment of both Type 1 and Type 2 diabetes. It has 2 more drugs in its pipeline for the treatment of diabetes that are currently undergoing clinical trials. Amylin also has an agreement with Takeda Pharmaceuticals to co-develop and commercialize drugs for the treatment of obesity.

This company should be considered speculative, since it currently only has 2 FDA-approved drugs. However, its prospects for the future look promising. Since there are 285 million people in the world with diabetes, Amylin has a large pool of potential individuals that can benefit from the use of its products. Amylin is expected to grow earnings at a whopping 39% annually for the next five years. If it hit its estimates, the current $10.60 stock price could rise to over $50 five years from now. However, be aware that the stock price will be sensitive to any news regarding its FDA-approved drugs and its pipeline drugs. Any negative news could crush the stock.

Hain Celestial Group (NASDAQ:HAIN)

Hain sells a wide variety of organic foods and personal care products internationally. Its natural and organic grocery products include cereals, baking mixes, pasta, condiments, cooking oils, infant and toddler foods, granola, cookies, crackers, various teas, and more. Hain also offers the following snack items: potato and vegetable chips, popcorn, whole grain chips, and organic tortilla chips. Its personal care products include items for skin care, oral care, hair care, body care, deodorants, sunscreens, infant care. It also processes meat, deli products, and meat-alternative products. Hain also has products for diabetics, medically sensitive consumers, and other health-conscience individuals.

Hain’s current stock price of $31.75 is trading at only 1.6 times book value per share, indicating an attractive value. Although it don’t pay dividends, it is expected to grow earnings annually at 12.7% for the next five years, which is 2% more per year than the expected earnings of the average S&P 500 company for the same period.

Mentor Graphics Corp. (NASDAQ:MENT)

Mentor designs systems to aid in the design, analysis, and testing of electronic hardware and components. The company makes various simulators for the multiple stages in electronic manufacturing.

It is currently undervalued with a forward P/E of 8.39 and PE of 1.01. The stock trades at only 1.4 times book value per share, reinforcing a great value. It has a healthy operating cash flow of $92.27 million with a clean balance sheet. Its earnings for the last five years were rocky, as it averaged a negative 18.21% the last five years, however it is expected to grow earnings at 10% annually for the next five years. If it meet these expectations, the stock could lag the market slightly. It would have to exceed these expectations consistently to beat the returns of the market.

Dynegy Inc. (NYSE:DYN)

Dynegy is a Houston-based producer and seller of electricity. It generates its power from natural gas-fired, oil-fired, and coal-fired generating plants. Its power footprint consists of 17 power plants with 11,800 megawatts in six states.

This stock looks a little speculative right now, as it has negative operating cash flow of -$31 million and reported negative EPS of -3.15. Its total debt of $5.06 billion is 3.4 times larger than the amount of total cash held by Sunoco (NYSE:SUN). It is expected to grow earnings (or should I say not grow earnings) at 0% annually for the next five years. I think there plenty of better stocks out there than Dynegy. I wouldn’t touch this one with a 10-foot (utility) pole.

Take-Two Interactive (NASDAQ:TTWO)

Take-Two develops interactive games and entertainment software, hardware, and accessories for platforms such as Playstation 2 & 3, Playstation portable, XBOX 360, Wii, DS systems, and Windows. Its labels include Rockstar Games, 2K Games, 2K Sports, and 2K Play. Take-Two produces these game brands: "Grand Theft Auto," "Max Payne," "Midnight Club," "Manhunt," "Red Dead Revolver," "Bully," "Bioshock," various Sid Meir’s games, and professional sports licensed games.

TTWO has $248.76 million in cash compared to $109.24 million in debt. It has a nice balance sheet with a 2.48 current ratio (current assets divided by current liabilities). It has a forward P/E of 5.48 and a PEG of 3.72. Its stock price of $13.58 is trading at only 1.9 times book value per share. It experienced negative earnings growth in the last five years, but is expected to grow earnings annually at 22.5% for the next five years. If it can meet or beat these expectations, TTWO stock could be over $35 five years from now.

Conclusion

After analyzing these stocks, I don’t see a lot that I like. I am intrigued by Amylin Pharmaceuticals' high growth potential, but I would consider it speculative since it only has 2 FDA-approved drugs. Take-Two Interactive also looks interesting if it can hit its future earnings estimates. Hain Celestial looks like the conservative steady-grower that can beat the market, although without paying dividends. If you want to clean up with a nice dividend yield combined with conservative steady growth, go with Clorox as your choice.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.