Carl Icahn is among the 25 richest people in the United States, with a net worth estimated to exceed $13 billion. He accumulated his wealth by being an activist investor, acquiring stakes in companies that were performing poorly, then pushing for organizational and administrative changes to unlock hidden shareholder value. Icahn typically buys buying beaten-down assets, restructures the business and then sells the assets for a profit when they are back in favor.

Icahn is far better at identifying hidden value than the average investor, so most of us could make money just by following his moves.

A case in point is Chesapeake Energy (NYSE: CHK). Icahn acquired a 5.8% stake in this company in December of 2010 and sold a third of his holdings three months later for a $150 million profit. If you had purchased and sold Chesapeake shares when Icahn did, then you could have locked in a nearly 50% return in just three months.
Not every Icahn deal is as successful, of course, but his moves are always worth studying. Here are four stocks the billionaire investor recently added to his portfolio.

1. CVR Energy (NYSE: CVI) — Initiated position
Icahn recently purchased 3.8 million shares of CVR Energy, a 14.5% stake in the company worth about $71 million.

CVR owns refineries in the Midcontinent United States, which are deeply undervalued, according to Icahn. CVR has a big cost advantage over competitors because its refineries are located near emerging U.S. oil fields where low-cost crude oil from shale rock formations is produced. By paying less for crude supplies, CVR locks in higher profits when converting this fuel into gasoline.

Crack spreads (the difference between oil costs and gasoline prices) for CVR and other Midwestern refiners hit $38 last summer and were much higher than industry average spreads of $25. CVR also benefits from proximity to steadily rising crude supplies such as the Bakken field, where output has tripled in the past three years.

Icahn is offering $2.6 billion, or $30 a share, in a takeover bid for CVR. In fact, he believes bigger oil companies such as Valero (NYSE: VLO) or Marathon Petroleum (NYSE: MRO) might be willing to pay $37 a share for the business. CVR’s share price has climbed 24% to $29 since Icahn made his offer. Even at a takeover price at $37, CVR would be valued at just 5.1 times EBITDA, making this one of the cheapest refinery takeovers in history.

2. Navistar International Corp. (NYSE: NAV) — Increased position
Last quarter, Icahn acquired an additional 7.3 million shares of Navistar, which ups his total stake in this military truck and RV manufacturer to 9.8%, worth roughly $274 million. Navistar’s share price has jumped 9% to $43 since Icahn’s latest purchase.

These shares were trading at $70 last April, but have lost nearly half their value due to lower sales to the military, which caused earnings to miss forecasts three quarters in a row.

Navistar appears undervalued at its current valuation of eight times earnings and six times projected 2013 earnings. Competitors Paccar (Nasdaq: PCAR) and Cummins (NYSE: CMI) trade at 16 and 13 price to earnings, respectively. Analysts say Navistar’s earnings could improve by 29% next year as trucking companies that put off equipment purchases during the recession begin to replace older vehicles with new fuel-efficient models.

3. El Paso Corp. (NYSE: EP) — Increased position
Icahn raised his stake in natural-gas pipeline operator El Paso Corp. last quarter to 72.3 million shares, or 9.4% of the company. His current stake is worth nearly $2 billion.

El Paso shares aren’t exactly cheap at 7.5 times EBITDA, but Icahn and others (at present, 35 hedge funds own stakes in El Paso) see hidden value in these assets. Kinder Morgan (NYSE: KMI), for example, plans to buy El Paso — combining the two largest natural-gas pipeline operators in North America — and sell the company’s exploration and production unit. Since the buyout was announced, El Paso shares have risen 40% to about $27.65. 

4. WebMD HealthCorp. (Nasdaq: WBMD) — Increased position
Icahn acquired 5.7 million shares of WebMD last quarter, raising his total stake to 11.6%. His current stake is worth more than $200 million.

This leading health care information website is struggling due to reduced advertising spending by drug makers. Shares have plummeted 57% in the past 12 months, and 2012 is expected to be challenging as well. WebMD is expecting declining revenue and a possible $2 million operating loss this year. 

Despite these problems, as my colleague David Sterman pointed out in this article, WebMD’s long-term growth story remains very much intact. The company is a vital resource for patients seeking medical information and likely to grow in tandem with the senior citizen population, which has a voracious appetite for health care services. The downturn in ad spending is likely only a temporary slowdown in the company’s upward growth trajectory.

Icahn knows WebMD will turn profitable when ad spending picks up and opposed the company’s plan to sell itself. Instead, he suggested  WebMD use its cash to buy back stock. The company must be listening; WebMD announced plans to repurchase $150 million worth of stock, or 11% of outstanding shares. With cash of $1.1 billion nearly equal to its $1.4 billion market value, WebMD shares have little downside risk. 

Risks to consider: Not every Icahn investment is a home-run. For example, bids for Clorox (NYSE: CLX) and Commercial Metals (NYSE: CMC) failed when he couldn’t sway enough shareholders. You should think of Icahn’s portfolio as a starting point for your own research, not a reason to invest.

Action to take –> Icahn is most successful when he acquires stakes in smaller companies and can exert more control. This is why my top picks are the two smallest companies discussed in this article, WebMD and CVR Energy. Navistar is bigger, with a $3.1 billion market value, and El Paso qualifies as a large-cap stock based on its $21.4 billion market capitalization.