If you are a value investor looking to boost your portfolio returns, then you could try following the stock-picking strategy of billionaire fund manager Carl Icahn. The legendary investor has amassed a fortune by identifying undervalued companies, taking big positions in the stock, and forcing company managers to make changes that enhance shareholder value.

During a 30-year investing career, Icahn has grown an initial stake of just a few million dollars into a portfolio currently worth more than $11 billion. Icahn’s funds have returned an eye-popping 106.9% since 2004 alone. His activist style has created considerable wealth for investors, but Icahn’s greatest strength is his ability to identify undervalued stocks.

Icahn looks for companies with rich assets, shares that are out of favor with investors and lots of cash on hand. Ideally, the value of the company’s assets should exceed its total market value.

The companies he buys are almost never glamorous. Icahn generally prefers boring “hard” assets such as real estate and energy reserves that are easy to value, but he will also invest in technology and pharmaceutical stocks if he thinks the firm’s product pipeline is undervalued. 
Here are three Icahn stocks I think are great picks for value investors.

1. Clorox Co. (NYSE: CLX)
Clorox owns many of the leading brands in consumer products. When most people think of bleach, they automatically think of Clorox. The company also owns dominant brands in other areas such as Pine-Sol cleaner, Kingsford charcoal and Glad trash bags. The strength of its brands helps make Clorox a steady performer through good times and bad. In the past decade, Clorox’s sales have risen every year and earnings have increased at a 10% annual rate.

Equally important, Clorox is an impressive generator of cash flow. EBITDA (earnings before interest, taxes, depreciation and amortization), a key cash flow metric, totaled $1.2 billion in the past 12 months and was nearly four times earnings. Clorox currently pays a $2.40 annual dividend and yields a rich 3.6%, which already beats the market’s sub-2% average yield, but strong cash flow has allowed the company to boost dividends by 10% a year and double the payout in the past 10 years. Clorox has also recorded 35 straight years of dividend increases.

Clorox shares are valued at 17 times earnings, which is below the P/E of 20 more typical for this company and less than its household product industry peers. Icahn purchased his 9.08% Clorox stake (2.5 million shares currently worth about $175 million) during this year’s March quarter and has options to purchase 11.5 million more.   

2. Motorola Mobility Holdings (NYSE: MMI)
About six months ago, Motorola spun off its mobile phone business as a separate entity. Icahn was a long-time investor in Motorola and pushed for the firm’s breakup (a tactic he often employs in order to unlock value).

Motorola Mobility makes the XOOM tablet, along with Android-powered smartphones and other communications devices. The company launched 23 new smartphones in 2010 and increased smart phone shipments 60% to 13.7 million units.

Motorola Mobility introduced its XOOM tablet along with the ATRIX, reportedly the world’s most powerful smart phone, this year, and targets smartphone unit growth of between 40% and 50% in 2011. Sales momentum is building while market share for rivals such as Nokia (NYSE: NOK) and Research in Motion (Nasdaq: RIMM) is eroding.

Icahn saw Motorola Mobility as a classic example of a company with an underestimated product pipeline and a cash-rich balance sheet. Motorola Mobility has cash exceeding $10.50 per share, which is equal to nearly half its $24 share price. In addition, the company is rapidly expanding free cash flow (i.e. cash flow plus capital expenditures). During this year’s March quarter, Motorola Mobility’s free cash flow grew nearly ten-fold on just 22% higher sales. The company is valued at only 14 times free cash flow and at less than one time sales.

As an independent entity, Motorola Mobility is now free to reinvest its rising cash flow in growing the product line and sales. Icahn holds an 11.4% stake in these shares, valued at $163 million. 

3. Federal-Mogul Corp. (Nasdaq: FDML)
Icahn’s stake in Federal-Mogul is valued at nearly $1.9 billion, which makes this his largest single stock holding. He purchased Federal-Mogul bonds before the company exited bankruptcy in 2007, swapping them for equity in 2008. He currently owns 76% of the company and is in the early stages of looking for potential buyers.
Federal-Mogul’s business is definitely not glamorous; the company makes powertrains and components for automobiles. Federal-Mogul emerged from bankruptcy in December 2007 with Icahn in control, who forced the company to cut more than $460 million from annual costs through restructuring.

Since then, Federal-Mogul has recorded eight straight quarters of profitable results and beat consensus analyst estimates in five of the past six quarters. In this year’s first quarter, Federal-Mogul posted 16% sales growth and tripled income compared to year-ago levels. Sales are benefiting from steadily increasing demand for fuel-efficient engines and powertrains. Analysts project greater than 20% growth this year and 30% next year.

Federal-Mogul generated EBITDA of $626 million in the last 12 months, which is roughly equal to three times earnings –very strong for a company in this sector. In addition, the company has cash of $10.26 per share, slightly more than half the recent $20 share price. The stock appears bargain-priced at a multiple of just 10 times earnings.

It looks even cheaper when considering it on a price-to-cash flow (P/CF) basis. The shares trade for just four times cash flow, which is a 30% discount to the auto parts industry average. One reason for the discount is higher leverage; Federal Mogul has $2.8 billion of debt and $1.3 billion of equity. However, the company’s strong cash flow provides good coverage of debt payments, which limits downside risk. 

Action to take–> Clorox is my top pick for conservative investors because of its reliable earnings, and dividend growth and rich yield. Motorola Mobility is a bit riskier due to increasing competition, but benefits from a fast-growing smart phone market. Federal Mogul is my top pick for aggressive portfolios. Icahn is seeking a buyer, which creates a window of opportunity for short-term gains if the company is acquired for a premium.

P.S. — I don’t know if you’re aware of this or not, but a 20-year energy agreement between the United States and Russia is about to expire. The problem is, this deal supplies 10% of America’s electricity. When the Russians refuse to renew the agreement, the U.S. will face an entirely new kind of energy crisis. This disruption could send a handful of energy stocks through the roof. Keep reading…