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Carl Icahn is an activist investor who takes minority stakes in public companies and pushes for change from management to unlock shareholder value. He focuses on buying beaten-down assets that nobody else wants, usually out of bankruptcy, rebuilds the companies and then sells them for a profit when they are back in favor.

He is known for shaking up some of the world's biggest corporations, and is the chair of Icahn Enterprises, a hedge firm that invests in real estate, metals and transportation companies. He is currently quite bullish on equity markets and likes to take a contrarian view when choosing investment opportunities as he believes that consensus thinking is generally wrong.

In this article, I analyze his five latest portfolio additions and evaluate them on a relative value basis. My actionable analysis concludes that El Paso (EP) and Vector (VGR) are holds, while Federal-Mogul (FDML), American Railcar (ARII) and Oshkosh (OSK) are buys.

El Paso Corporation

El Paso has a market cap of $19.16 billion and is currently trading at around $25, with a price to earnings ratio of 710.00. It has a 52 week trading range of $13.07 to $25.73 per share. It reported third quarter 2011 earnings of $1.40 billion, an increase from second quarter earnings of $1.24 billion. The income statement showed net income for the third quarter of -$368.00 million, a significant decrease from second quarter net income of $262 million. It has quarterly revenue growth of 15.70%, a return on equity of 4.73% and pays a dividend with a yield of 0.20%.

One of El Paso’s closest competitors is Williams Companies Inc (WMB). Williams has a market cap of $17.95 billion and is trading at around $31.50. It has a price to earnings ratio of 18.29, quarterly revenue growth of 17.50%, a return on equity of 14.54% and pays a dividend with a yield of 2.60%. This data indicates that Williams is outperforming El Paso.

Icahn holds 65,983,829 shares of El Paso, buying the entire holding in the third quarter 2011. The average purchase price per share was $19.11. Based upon the last trading price of $24.80, he has made a return of 29.77%.

El Paso´s cash position has improved in the last quarter. Its balance sheet showed $390.00 million in cash for the third quarter, an increase from $260.00 million in the second quarter. El Paso’s quarterly revenue growth of 15.70%, versus an industry average of 12.50%, and a return on equity of 4.73%, versus an industry average of 11.30%, indicates that it has stronger growth prospects than its peers but management is not performing as well.

The earnings outlook for the oil and gas industry is positive due to the ongoing boom in demand for resources driven by the growth of the Chinese economy. This indicates further opportunities for strong revenue growth, which when combined with a weak dollar, that should make U.S. exports more competitive, bodes well for oil and natural gas demand and producers like El Paso.

However, despite the positive industry outlook and El Paso’s firm performance indicators, I do not agree with Icahn’s decision to purchase the stock due to the company reporting a net loss, which was a substantial decrease in net income from the second quarter. Accordingly, I would prefer to take a wait-and-see approach and I rate the company as hold.

Federal-Mogul Corporation

Federal-Mogul has a market cap of $1.35 billion and currently trades at around $14, with a price to earnings ratio of 6.98. Its 52-week trading range is between $13.50 and $27.20. It reported third quarter 2011 earnings of $1.80 billion, an increase from second quarter earnings of $1.72 billion. Third quarter net income was reported at $64.00 million an increase from second quarter net income of $51.00 million. It has quarterly revenue growth of 12.20%, a return on equity of 14.34% and doesn’t pay a dividend.

One of Federal-Mogul’s closest competitors is Dana Holding Corporation (DAN). Dana Holding’s has a market cap of $1.82 billion and is trading at around $12, with a price to earnings ratio of 19.42. It has quarterly revenue growth of 28.80%, a return on equity of 7.88% and doesn’t pay a dividend. Based on these indicators it has greater growth potential than Federal-Mogul but management is not generating as good a return on shareholder equity as Federal-Mogul.

Icahn holds 75,980,915 shares of Federal-Mogul, purchasing 738,991 shares in third quarter 2011 to add to the 75,241,924 shares purchased in second quarter 2011. The average purchase price per share was $23.64. Based upon the last trading price of $13.78, he has made a return of -41.71%.

Federal-Mogul’s cash position has improved with $931 million in cash for the third quarter 2011, a decrease from $1.04 billion cash in the second quarter. The net tangible assets have decreased to -$522 million in the third quarter from -$386 million in the second quarter. Federal-Mogul’s quarterly revenue growth of 12.20%, versus an industry average of 7.80% and a return on equity of 14.34%, versus an industry average of 18.10%, indicates that it has better growth prospects than its competitors but is not achieving the same return on shareholder equity.

The outlook for the auto parts industry is quite positive, with Moody's Investors Service revising the outlook from stable to positive. This outlook is based on improving US economic indicators and the growing demand for vehicle parts.

Based on the relatively positive industry outlook coupled with Federal-Mogul’s solid performance indicators and increased net income and cash holdings, I agree with Icahn’s decision to invest in this stock. Accordingly, I rate the company as a buy.

Vector Group Limited

Vector, the cigarette manufacturer, has a market cap of $1.39 billion and is currently trading at around $17.50, with a price to earnings ratio of 17.24. Its 52 week trading range has been between $15.37 and $19.28. It reported third quarter 2011 earnings of $289.00 million, a decrease from second quarter earnings of $291.18 million. Third quarter net income was $17.55 million a substantial decrease from second quarter net income of $30.30 million. It has quarterly revenue growth of 1.90%, no return on equity and pays a dividend with a yield of 9.20%.

One of Vector’s closest competitors is Lorillard Incorporated (LO), which has a market cap of $14.78 billion and is trading at around $109.50. It has a price to earnings ratio of 14.75, quarterly revenue growth of 3.70%, no return on equity and pays a dividend with a yield of 4.70%. Based on this data it is marginally outperforming Vector, although Vector pays a dividend with a far more attractive yield.

Carl Icahn holds 14,799,855 shares of Vector, buying the entire holding in the second quarter 2011. The average purchase price per share was $17.34. Based upon the last trading price of $17.55, he has made a return of 1.21%.

Vector’s cash position has improved, with the balance sheet showing $329.89 million in cash for the third quarter, an increase from $321.47 million in the second quarter. The net tangible assets have declined with -$174.18 million in the third quarter 2011 from -$157.58 million in the second quarter. Vector’s quarterly revenue growth of 1.90%, versus an industry average of 6.00%, and no return on equity versus an industry average of 57.10%, indicates that it is underperforming many of its competitors.

On first impressions the earnings outlook for the tobacco industry looks bleak with increased regulatory pressure, a depressed economy and unemployment in excess of 7%, which is forecast by Goldman Sachs, to remain above that level until 2013. However, Fitch believes tobacco companies will manage the current regulatory pressures and be able to increase earnings through increased pricing and cost cutting.

Despite the positive industry outlook I do not agree with Icahn’s decision to invest in Vector, primarily due to its substantial drop in net income and net tangible assets, which are negative. On this basis I would prefer to take a wait and see approach with the company, and rate it as a hold.

American Railcar Industries Inc

American Railcar has a market cap of $514.37 million and is currently trading at around $24, without a price to earnings ratio. Its 52 week trading range has been between $13.68 and $28.74. It reported third quarter 2011 earnings of $125.78 million, an increase from second quarter earnings of $111.91 million. Third quarter net income was $4.03 million a significant increase from second quarter net income of $0.57 million. It has quarterly revenue growth of 94.10%, a return on equity of -2.76% and doesn’t pay a dividend.

One of American Railcar’s main competitors is Greenbrier Companies Inc (GBX). Greenbrier has a market cap of $522.36 million and last traded at around $21. It has quarterly revenue growth of 147.60%, a return on equity of 2.49% and a price to earnings ratio of 86.42. It doesn’t currently pay a dividend. Based on these indicators, it is marginally out performing American Railcar.

Carl Icahn holds 11,810,598 shares of American Railcar, buying 246,453 shares in third quarter 2011, adding to the 11,564,145 shares purchased in second quarter 2011. The average purchase price per share was $23.08. Based upon the last trading price of $23.53, he has made a return of 1.95%.

American Railcar’s cash position has declined. The balance sheet showed $284.01 million in cash for the third quarter 2011, a decrease from $301.05 million in the second quarter. The net tangible assets have increased to $299.78 million in the third quarter 2011 from $296.69 million in the second quarter. American Railcar’s quarterly revenue growth of 94.10%, versus an industry average of 8.10%, and a return on equity of -2.76%, versus an industry average of 14.20%, indicates that it has better growth prospects than many of its competitors, but is not generating the same return on shareholders' equity.

The outlook for the railroads industry is quite positive, primarily due to an improving U.S. economy, a significant surge in automotive shipments, and a sharp rebound in many end-markets. Freight rail is a derived demand industry, as demand for rail services is tied to the demand for the products that railroads haul. Therefore, with some positive signs that the U.S. economy is emerging from the recession, the outlook for the railroad industry is also improving.

The positive industry outlook combined with American Railcar's substantially increased net income and increased positive net tangible assets makes it an attractive investment. Accordingly I agree with Icahn’s decision to invest in the company and rate it as a buy.

Oshkosh Corporation

Oshkosh has a market cap of $1.89 billion, and is currently trading at around $21, with a price to earnings ratio of 6.96. Its 52 week trading range has been between $14.07 and $4011. It reported third quarter 2011 earnings of $2.12 billion, an increase from second quarter earnings of $2.02 billion. Third quarter net income was $37.50 million a large decrease from second quarter net income of $68.40 million. It has quarterly revenue growth of 0.50%, a return on equity of 18.70%.

One Oshkosh’s main competitors is Terex Corporation (TEX), which has a market cap of $1.63 billion and is currently trading at around $15, with a price to earnings ratio of 876.47. It has quarterly revenue growth of 67.70%, a return on equity of 0.22% and doesn’t pay a dividend. Based on these indicators, Terex has better growth prospects than Oshkosh but it is lagging behind on returns on shareholders’ equity.

Carl Icahn holds 481,400 shares of Oshkosh, buying 6,165,879 shares in the third quarter 2011 adding to the 2,499,381 shares purchased in the second quarter 2011. The average purchase price per share was $24.63. Based on the last trading price of $20.75, he has made a return of -15.75%.

Oshkosh’s cash position has improved in the last quarter. The balance sheet showed $428.50 million in cash for the third quarter 2011 an increase from $393.80 million in the second quarter. Oshkosh’s quarterly revenue growth of 0.50%, versus an industry average of 0.00%, and a return on equity of 18.70%, versus an industry average of 27.10%, indicates that it is underperforming many of its competitors.

The consensus is that the earnings outlook for the truck manufacturing industry is improving, and the industry can look forward to continued growth. Although any further negative economic news will have an effect on that growth and accordingly, the outlook given the recent economic instability in Europe, should be taken with some caution.

It is important to note that a key risk with investing in Oshkosh is that it derives a substantial amount of its revenue from US government contracts, which means that any significant downturn in the US economy that leads to decreased government spending will have a direct impact on the company’s profitability. Although overall, based upon the positive industry outlook, increased net income and balance sheet cash I agree with Icahn’s decision to invest in Oshkosh, and I rate it as a buy.

Source: 5 Major Buys From Billionaire Carl Icahn