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Icahn has eyes on Oshkosh

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David Roeder reports on real estate at 6:22 p.m. every Thursday on WBBM-AM (780) and WBBM-FM (105.9). The reports are repeated at 10:22 p.m. Thursday and 7:22 a.m. Sunday

Updated: October 14, 2012 12:29PM

Billionaire investor Carl Icahn has stirred up trouble at Lisle-based Navistar International (NAV). Now he’s doing it at a potential merger partner for Navistar, giving investors a chance to bet on a future deal.

Icahn said Thursday that he plans a tender offer for control of Oshkosh (OSK) that values the maker of fire and military trucks and construction equipment around $3 billion. With almost a 10 percent stake in Oshkosh, Icahn is offering to buy the rest at $32.50 a share. The stock, which has risen 40 percent this year, closed Friday at $29.73.

The endgame here could look compelling to investors who know that once Icahn sets his heart on something, he seldom comes away empty-handed. Months ago, he suggested a Navistar-Oshkosh merger, with some support from the Navistar end, but the plan foundered against Oshkosh’s opposition. Taking over Oshkosh would wipe out that hurdle.

Icahn has solidified his influence at Navistar, where he and a protégé, hedge fund manager Mark Rachesky, together own 26 percent of the company. Under a recent deal, Icahn got expanded representation on the Navistar board, with one of the new members being Rachesky. As a tradeoff, Icahn promised not to lead a proxy fight during next year’s director elections.

With that matter settled, Icahn can afford to turn his attention to Oshkosh, which has its challenges. Returns from its defense sector are lumpy, while pressure on municipal budgets is cutting into orders for its fire trucks and ambulances.

Analyst Daniel Ferry, who follows industrial companies for the Motley Fool, wrote, “If a merger does go through, Oshkosh’s volatile defense segment will be nicely complemented by Navistar’s more stable commercial freight truck operations. For Navistar, a marriage with Oshkosh would make the company’s financial future look much more stable.”

Even if there is no deal, the talk focuses attention on both companies and on the turnaround prospects for Navistar. That alone could make money for Icahn.

DREAM A LITTLE: Price-earnings, or P-E ratios are a widely used gauge for stock valuations. But have you heard of P-S, or price-to-sales?

Analyst Tracey Ryniec at Zacks Investment Research prefers the P-S ratio, arguing it is harder to manipulate. It is the company’s market value divided by the past 12 months’ revenue, and the lower the ratio the better because it means an investor is paying less for each sale.

Ryniec listed three companies that have “dream” P-S ratios of 0.1 to 0.7. They are Phillips 66 (PSX) — which she called “really cheap” — Trinity Industries (TRN) and HanesBrands (HBI).

BEGS TO DIFFER: While much has been written about individual investors reducing their purchases of stocks, the research firm Birinyi Associates contests that view. Yes, Birinyi agrees, there has been a net outflow of money from equity mutual funds totaling $221 billion since March 2009. But it said that has been more than matched by an inflow of cash to equity exchange-traded funds — passive, low-cost index products — of $270 billion.

It’s not a dislike of stocks, but it might be a dislike of active mutual funds, wrote Birinyi’s Jeffrey Yale Rubin.

BANK ACCOUNTING: Analysts at Goldman Sachs said in a report last week that bank stocks are a way to play a housing market recovery. They said the market has failed to price into certain shares the improved results some banks will see from even a small gain in housing.

Goldman said its top ideas in the sector are Citigroup (C), Regions Financial (RF), Wells Fargo (WFC) and Everbank Financial (EVER). Banks to avoid, according to Goldman, are Bank of America (BAC) and SunTrust (STI).

DIMON JUBILEE: JPMorgan Chase (JPM) Chairman Jamie Dimon reported record third-quarter profits as his bank raked in more mortgage loans and said the housing market has “turned the corner.”

Maybe, maybe not. What’s more likely to “turn the corner” is Dimon’s own prospects for a bonus.

CLOSING QUOTE: “U.S. stocks have outperformed but have become relatively expensive and linked to monetary easing. If economic momentum weakens further, it may be time to head for the U.S. departures lounge. Destination: emerging markets.” — fund management firm BlackRock, discussing the prospect of a “fiscal cliff” in the federal budget rattling the markets after the election

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