A Raider, Is a Raider, Is a Raider

11/21/2012 7:45 am EST


Carl Icahn has been in the business of upsetting the status quo for a long time, and he's back at it again in the railroad sector, notes William Patalon III of Money Morning.

Back in the 1980s, corporate raider Carl Icahn was routinely vilified by CEOs and worshipped (most of the time) by investors. The mere mention of his name in association with a specific company was usually good for a 15% or 20% pop in that company's stock price.

Thirty years have passed, and Icahn is now 76 years old. And he's apparently no longer a "corporate raider." In the careful, politically correct climate of the present, Icahn is now referred to as an "activist investor."

Call him what you want...but the bottom line is that the Icahn name still has a King Midas-like cachet. And what happened last week proves it.

Indeed, shares of American Railcar Industries (ARII) soared as much as 19% last Tuesday, after investors speculated Icahn might be crafting a merger plan that involves the railroad-car manufacturer.

As its name implies, the St. Charles, Missouri-based American Railcar designs, builds, and refurbishes railcars and provides related services. This brawny industrial business typically ebbs and flows in tandem with the broader economy. But the oil-and-gas exploration boom that's gripping parts of America right now—and the new fracking process that demands tons and tons of sand—has transformed railroad cars into prized assets.

That big boost in demand for American Railcar's sand-transporting "hopper" cars was a key reason we recommended the company's stock 12 months ago. But, as we made very clear at the time, there was also a kicker—an additional catalyst that put a big exclamation point on the investment case for ARII's shares.

That kicker: Billionaire Carl Icahn was accumulating the stock—meaning the company could end up as a takeover play.

Icahn Moves in on Greenbrier
The actual story that began taking shape last week is a bit more complex than that, but the end result could be the same for investors who acted on our recommendation.

In regulatory filings that became public in the pre-market hours of Tuesday morning, Icahn reported taking a 9.99% stake in The Greenbrier Cos. (GBX), a company in the same business as American Railcar.

Icahn said he planned talks relating to strategic opportunities for Greenbrier, which pushed that company's shares up 9% in pre-market trading and 19.93% on the day. As a result, American Railcar shares soared 17.67%.

Why all the fuss? Icahn holds a controlling stake in ARII. So it looks like he's planning to take another shot at merging Greenbrier and American Railcar—which he tried and failed to do back in 2008.

Both companies just reported strong third quarters, with earnings growth of at least 60% over the same period the year before.

Going forward, however, the handicappers on Wall Street are projecting stronger growth for ARII—a key reason GBX shares had been down more than 40% so far this year (before last week's "Icahn Effect").

To date, American Railcar shares are up more than 21% from where we recommended them 12 months ago. The consensus target of $35.50 is 23% above Friday's closing price, and would represent a total gain of 43% from where we first talked about the stock.

I can tell you this: after all these years Carl Icahn is still a player that can move the markets.

Read more from Money Morning here...

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