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Over the last couple of weeks, activist investor Carl Icahn has made a couple of attention grabbing bets in very beaten down stocks. First, he made a significant investment in the much-maligned Chesapeake Energy (NYSE:CHK). Second, he added to his position in Navistar International (NYSE:NAV) after the company's stock plunged following a weak quarterly report.

Should investors follow Icahn into these two stocks trading around the bottom for the last couple of years? Considering that both stocks have been on our list of stocks to follow, the moves caught our attention.

Chesapeake Energy

This company is the second-largest producer of natural gas, a top 15 producer of oil and natural gas liquids and the most active driller of new wells in the US. The company's operations are focused on discovering and developing unconventional natural gas and oil fields onshore in the US.

Back in late May, Icahn raised his stake in this stock to 7.65% in the process becoming the second largest shareholder. At the time, the stock was trading near 2 year lows below $16. The stock is down more than 50% from highs back in August.

Icahn hopes to change the corporate structure and mindset at Chesapeake by calming the wildcat CEO, Aubrey McClendon. The plan along with investor dissatisfaction has already resulted in a shakeup of the board of directors.

Chesapeake has long been known for successful land purchases in new discoveries. Unfortunately, this success along with a strong drilling push has helped lead to much higher production and lower commodity prices. On top of that, the massive growth appetite and land purchases has led to a funding gap that along with commodity prices has pushed down the stock. Not to mention the numerous corporate governance issues.

Even with extremely low nat gas prices, the company still maintains an excellent asset base. Pressure from an activist could help the company focus on controlling spending to help reduce debt levels. Finding the next big discovery is the last thing Chesapeake needs though it just announced a new basin. That just amounts to more required spending and higher production at a time the company needs to lower spending and production.

Even with a jump in the stock price over $17, investors can still purchase the company for close to Icahn's purchase price.

Navistar

This company produces commercial and military trucks, diesel engines, school and commercial buses, recreational vehicles, and chassis for motor homes and step vans.

Icahn purchased 883K shares for $21.6M at an average price of $24.44 apiece last Thursday. This lifted his holdings to 8.1M shares or 12% of the outstanding shares.

Incredibly, the stock plunged to nearly $20 last Thursday after the company reported another disappointing loss in what was suppose to be a turnaround quarter. After news of the Icahn purchase, the stock closed the next day above $28 for an incredible return for anybody bottom fishing.

Fortunately for anybody wanting to follow Icahn the stock was down as much as 10% on Tuesday to below $26 getting closer to his recent purchase price. Though investors should realize that the stock recently traded above $70 back in early 2011 so paying $28 might still provide huge upside.

Back in March, we wrote here about whether the stock was cheap enough. Clearly it wasn't at that point with the stock close to $40 back then, but now might finally be a different story. After several disappointing quarters, the stock likely won't move until the company can show some improvement. The downside though might be limited with Icahn hanging around.

The Q213 results were impacted by higher warranty costs for older engines and speculation on engine certification holding back purchases. The company reported a loss of $172M, or $2.5 per diluted share, compared to a solid gain last year.

This unexpected loss has led analysts to cut 2012 estimates to $1.70 from over $4 just 30 days ago. Analysts that 90 days ago expected $6.50 for 2013 now only expect $4.2. When these numbers start moving back up will be the time to buy.

The dramatic drops in the company's prospects and analyst expectations highlight the risk of investing in this stock.

This is where investors can chose to follow Icahn into the stock based on the concept that he has done sufficient work on the EPA and engine certification risks. The company has huge earnings power once turned around.

Icahn Impact

Clearly Icahn isn't always 100% successful considering his failure last year with Lions Gate Entertainment (NYSE:LGF). Historically though, Icahn has a very successful record suggesting that at least one of these stocks will be a home run. Maybe even both.

Both of these companies have appealing asset bases and earnings potential that maybe a corporate activist is what can turn around the stocks. Or maybe just a better economy will solve the problems ailing the companies.

While both companies face industry issues, the main problem appears to be self inflicted wounds by bad management decisions or execution.

Conclusion

Will Icahn help increase the value of these two stocks? My guess is that in both cases it surely won't hurt.

The major problem with following him into investments is that the stock can crater when he jumps out. Not only will his exit place downward pressure on the stock from the massive amount of shares he'll sell, but it will also plunge after the news hits the market. The double whammy will leave his followers with a considerably less gain than what he achieved.

On the other hand, if he is able to craft a merger for the stocks investors following him could make out like a bandit. Bottom feeding with Icahn might just be very lucrative in these cases.

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

Additional disclosure: Please consult your financial advisor before making any investment decisions.

Source: Bottom Feeding With Icahn