Carl Icahn, The Trucker Driver

Oct.14.11 | About: Navistar International (NAV)

By Jonathan Chen

Last night, noted activist investor Carl Icahn decided he wanted to move away from search engines -- Yahoo, (NASDAQ:YHOO) -- patents -- Motorola Mobility (NYSE:MMI) -- and biotech for a second, to decide he wants to be a truck driver. When you are worth billions, I guess you can do whatever you want.

No, Ichan is not giving up his day job being a corporate raider and activist investor. Rather, he filed a stake of 9.8% in Navistar International Corp. (NYSE:NAV), a military truck and recreational vehicle manufacturer. Icahn now owns several million shares in the company, and may have plans to acquire more. (Here is the complete filing with the SEC.)

The reason behind the $118.1 million stake? Icahn sees serious value in the name. Just take a look at this paragraph in the statement:

The Reporting Persons acquired the Shares in the belief that the Shares were undervalued at current levels. The Reporting Persons have had conversations with management of the Issuer to discuss the Issuer's business and will seek to have additional conversations from time to time to discuss the Issuer's business and strategies. They have also discussed the possibility of adding persons to be suggested by the Reporting Persons to the Issuer's Board of Directors but no agreements or understanding exist with respect thereto.

Further down in the letter, it says the person (Icahn) may acquire more shares. Now that Icahn seems to have washed his hands of Clorox (NYSE:CLX) by withdrawing his slate of directors, he can focus on Navistar. Owning 9.8% in the company is significant, and it is highly unlikely he will let this one go, as he did with Clorox. No one assumed Carl was serious with Clorox, and that ultimately proved to be right.

Clorox is a $9 billion company, while Navistar's market cap is only $3 billion, including today's 9% pop on the Ichan announcement. This means that Icahn can have significantly more influence on the board of directors as the company is smaller and Ichans' stake carries more weight.

Since hitting over $70 per share in April, shares of Navistar have gotten destroyed, losing almost half their value. The Warrenville, Ill.-based company has been approached by Icahn over potentially adding board members, but so far, nothing has happened.

Shares of Navistar trade at less than 7x 2012 earnings estimates, well below where competitor Paccar (NASDAQ:PCAR) trades. Icahn definitely sees the value in Navistar. Now it appears he is blowing his horn to try to get the company to do something to increase it.

Action Items

Bullish: Traders who believe that Icahn will be successful might want to consider the following trades:

  • Icahn has had a strong history of being successful with his activist investments, although they take longer than some traders would like. Navistar's small size could lead it to be the next success story for Icahn.

Bearish: Traders who believe that Icahn will not win out here may consider alternate positions:

  • Shares got a boost last night on the Icahn announcement. There is now hope baked into the stock. If Carl can not do something, and the company does not improve operations, shares could potentially fall.

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