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Icahn Lining Up His Next Target?

Is Navistar Carl Icahn’s next target? Could be. Afterall, the truck engine maker was the only new stock position taken by the activist investor in the fourth quarter.

Is Navistar Carl Icahn’s next target?

Could be. After all, the truck engine maker was the only new stock position taken by the activist investor in the fourth quarter, according to a recent regulatory filing. So far this year, he has also taken an initial 9 percent stake in Clorox and 11.39 percent of Motorola Mobility Holdings, which was spun off from Motorola. Icahn received these shares as a shareholder of Motorola.

Icahn did not return a call to comment.

Now, he did not exactly buy a big stake in Navister, having picked up just 9,326 shares. I know this is a puny amount. However, if Icahn buys more, but does not hit 5 percent of the total outstanding, we will not know this until around May 15, the next time he is required to file a 13f.

Interestingly, another hedge fund—Zweig-DiMenna Partners—bought more than 360,000 shares in the fourth quarter, making it the fourth largest new buyer of the stock. What exactly does Navistar do? It is best known for its diesel engines as well as military trucks, school buses, recreational vehicles, and chassis for motor homes and step vans. The company was embroiled in an industry controversy when it chose to adopt a different technology than the rest of its competitors to meet new standards for reducing engine exhaust pollution.

Kristine Kubacki, who follows the company for Avondale Partners, calls this a Betamax-VCS type of showdown that will either make or break Navistar. “If it works, great, if it doesn’t, it’s bad,” she stresses.

In fact, in late January the company said it expects substantial gains in fiscal 2011 earnings as the result of the successful implementation of its three-pillar growth strategy and improving economic conditions. It said it expected to earn between $5 and $6 per share this year compared to the average analyst estimate of $4.68 per share. Small wonder the stock surged 8 percent on the news. “I think the company is moving in the right direction in what it is doing,” Kubacki stresses.

So, why would Icahn be interested? For one thing, he could simply think it is a good investment. It is not clear, when in the fourth quarter Icahn bought his shares or at what price. But since December 31 alone, the stock is up 12 percent, to around $64 or so.

Ben Elias, who follows the stock for Sterne, Agee & Leach, says he always felt there was a lot of value to unlock. “An investor today looks at the company’s investments, its joint ventures in Brazil and India and new technologies,” he adds.  However, he stresses the company does not lend itself to a break-up. It’s not one of those sum-of-the-parts type of plays. Although from a governance standpoint investors might be upset about the company’s staggered board, analysts are excited that retired Army Gen. Stanley McChrystal was recently voted to join the company's board of directors. He could help the company boost its relatively small, but growing, defense business.

And few investors recently joined the Teamsters’ bid to reject the company’s pay package to executives. One investor, however, thinks if Icahn gets more involved in the company, he may want to aggressively push to put Navistar up for sale. After all, its market cap is less than $5 billion. This investor thinks a large company might be interested in buying Navistar, such as Germany’s Daimler, Sweden’s Volvo, Sweden’s Scania or China’s MAN.  And, if its engine strategy doesn’t work: “It will need a shake-up,” says Kubacki.

And shake-ups are Icahn’s lifeblood.

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