Top Picks From Carl Icahn

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 |  Includes: BMY, CVI, FDML, FRX, HAIN, NAV, RAIL
by: FAF Research

Carl Icahn is an activist investor. He takes minority stakes in public companies and typically pushes for change. Icahn buys beaten-down assets that nobody else wants, usually out of bankruptcy, then fixes them up and sells them when they are back in favor. Regarding his style, Icahn explains:

The consensus thinking is generally wrong. If you go with a trend, the momentum always falls apart on you. So I buy companies that are not glamorous and usually out of favor. It is even better if the whole industry is out of favor.

I like to research Carl Icahn's top holdings and evaluate each pick. I see his portfolio via whalewisdom.com.

Amalyn Pharmaceuticals (AMLN)

Recently Rodman & Renshaw wrote in one of their research papers that Amalyn (AMLN) will sell itself in the near future. Despite a disappointing exenatide franchise, recent reports in the media have been one-sided bullish and indicated potential interest from no less seven companies. Rodman & Renshaw believe these comments have built up the perception of a bidding war, despite limited evidence that one may exist. As a result, they believe there is significant risk that the final buyout price of AMLN shares will be at discount to current levels. Rodman is bearish on AMLN and has an Underperform rating.

Robert W. Baird also downgraded the stock evaluating that the Company has generated a lot of value since its divorce from LLY, but their contrarian thesis from last November has now nearly fully played out and takeout premium, the final leg, can cut both ways. They see downside potential to the mid-teens has much greater magnitude, so they're recommending selling AMLN stock.

My opinion is that AMLN reported an extremely weak quarter with both top-line and operating costs missing estimates. Any potential acquirer of Amylin would be looking to squeeze out a majority of the costs from the company. The Company is a strong acquisition candidate but the ultimate price will depend on the number of bidders interested in the company.

I think is very difficult to invest in this stock given that the Industry and the business is extremely hard to understand. As I explained in some previous articles, I do not like to invest in the pharma sector.

CVR Energy (NYSE:CVI)

Carl C. Icahn entered into an agreement with CVR Energy , Inc. regarding the tender offer by his affiliates for all outstanding shares of common stock of CVR for $30.00 per share in cash, plus a contingent value right. Among other things, the agreement provides that the poison pill would be removed as an impediment to the offer so that, if at least 36% of CVR's outstanding shares are tendered, the offer can close and shareholders will receive their money.

CVI is an independent refiner and marketer of high value transportation fuels and, through a limited partnership, a producer of ammonia and urea ammonia nitrate fertilizers. I like this pick because the Company is undervalued and I think that Icahn is capable of unlocking value for investors.

Hain Celestial Group (NASDAQ:HAIN)

Incorporated in 1993 and headquartered in Melville, New York, The Hain Celestial Group, Inc. produces, distributes, markets, and sells various natural and organic foods as well as personal careproducts in the United States, Canada and Europe. As I explained in my last Warren Buffett article, I like to consider picks in the food Industry.

Being a leader in natural food and personal care products categories with an extensive portfolio of well-known brands, Hain Celestial offers investors one of the strongest growth profiles in the industry.
The stock is poised to surge as the economy gradually revives and demand for healthier and natural food improves.

In the last earnings report, Hain Celestial beat expectations. HAIN reported Q3 earnings of $0.54 per share,$0.04 better than the Capital IQ Consensus Estimate of $0.50 while revenues rose 31.6% year/year to $379.4 mln vs the $407.1 mln consensus. The Company issued mixed guidance for FY12, forecasting EPS of $1.76-1.80 vs. $1.73 Capital IQ Consensus Estimate. Also management sees FY12 revenues of $1.4-1.41 bln vs. $1.47 bln Capital IQ Consensus Estimate.

After the earnings report, Canaccord Research wrote that sales momentum continued with 9% consumption growth and growth of 11% in the US. Results are impressive and consistent with the relative outperformance of natural and organic versus the packaged food industry. Canaccord remains impressed with current performance and expect the category and brand strength to continue.

I like this Icahn pick because the Company is a leader in a growing Industry, with one of the best growth prospects.

Navistar International (NYSE:NAV)

I do not feel comfortable investing in Navistar because I see the Company too exposed to macro or economic risks.

Recently NAV gave a bad earnings report. NAV reported Q1 loss of $2.08 per share, excluding non-recurring items,$1.80 worse than the Capital IQ Consensus Estimate of ($0.28) while revenues rose 11.3% year/year to $3.05 bln vs the $3.01 bln consensus. The revenue growth was driven by increased truck volumes in traditional and worldwide markets. NAV issued a lowered guidance for FY12 and also lowered EPS to $4.25-5.25, excluding non-recurring items, from $5.00-5.75 vs. $5.37 Capital IQ Consensus Estimate. Navistar anticipates that North America truck demand will increase 5 to 18 percent in the fiscal year ending October 31, 2012, to a range of 275,000 to 310,000. NAV is a business I find very difficult to understand and I prefer to stay on the sidelines at this moment.

Currently, shares of NAV trades at 7.5x consensus 2012 EPS estimate of $5. The company' s current P/E is 12.7x, compared with the 16.2 average for the peer group and 14.3 for the S&P 500. Over the last five years, shares of Navistar International have traded in a range of 3.3x to 113.4x trailing 12-month earnings. The stock is also trading at a discount to the peer group, based on forward earnings estimates.

American Railcar Industries (NASDAQ:RAIL)

FreightCar America, Inc. manufactures railroad freight cars, with particular expertise in coal-carrying railcars. In addition to coal cars, FreightCar America designs and builds flat cars, mill gondola cars, intermodal cars, coil steel cars and motor vehicle carriers.
It is headquartered in Chicago, Illinois and has manufacturing facilities in Danville, Illinois, Roanoke, Virginia and Johnstown, Pennsylvania.

Freightcar America recently was upgraded to Hold at KeyBanc Capital Markets. They expect that the Company could meet or exceed the consensus 1Q12 estimate of $0.39, so KeyBank analysts believe there could be more upside than downside from these levels in the near term. That said, KeyBank analyst continues to think RAIL serves the most challenged railcar end market (coal) so they find not easy to model earnings in the near term, and consensus estimates are likely still too high for 2013.

As opposed to investors like Einhorn or Steve Mandel, Icahn loves to invest in companies that an individual investor finds very difficult to understand. Freightcar America recently gave a very optimistic earnings report. RAIL reported Q1 earnings of $0.81 per share,$0.48 better than the Capital IQ Consensus Estimate of $0.33; revenues rose 203.5% year/year to $219.1 mln vs the $164.81 mln consensus. The Company delivered 2,613 railcars to customers in the first quarter of 2012, of which 2,146 were new cars, 80 were used cars and 387 were leased cars.

I prefer to stay on the sidelines with these type of macro-sensitive companies.

Other stocks that Carl Icahn likes

Icahn also holds Federal Mogul (NASDAQ:FDML) and Forest Labs (NYSE:FRX)

FDML is a leading global supplier of powertrain, chassis and safety technologies, serving the world's foremost original equipment manufacturers of automotive, light commercial, heavy-duty, agricultural, marine, rail, off-road and industrial vehicles, as well as the worldwide aftermarket. The company's leading technology and innovation, lean manufacturing expertise, as well as marketing and distribution deliver world-class products, brands and services with quality excellence at a competitive cost. Federal-Mogul recently missed by $0.18 and also missed on revenues. Management stated that Global aftermarket is stable in North America, growing in BRIC, and softer in Europe. With regard to outlook, management explained:

We expect to benefit from overall market growth and continued demand for higher content powertrain and vehicle technologies in 2012.

Another hard-to-understand Company from Icahn.

Regarding Forest Labs, recently Icahn Capital discloses 9.92% stake in amended 13D and plan to nominate a slate of directors at the upcoming meeting.Forest's trailing 12-month earnings multiple is 9x, a significant discount to the 23.6x average for the industry and 14.6 for the S&P 500. What is interesting about FRX is its pipeline depth. Over the past few years, Forest has been very active in signing in-licensing and partnership deals with the intention of expanding its pipeline. Since 2007, the company acquired Kerexa, Novexel, the Grunenthal European colistin business and Clinical Data for about $2.1 billion, and invested an additional $700 million in initial new product license payments over the same period. I found that the pipeline is the most interesting positive of FRX and maybe Icahn also gave consideration to this in order to invest.

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