Icahn May Be After the Wrong Auto-Parts Maker

Billionaire investor Carl Icahn has made a lot of headlines lately with his attempted purchase of Lear (LEA - commentary - Cramer's Take), the Michigan-based auto-parts manufacturer. Icahn's company, American Real Estate Partners (ACP - commentary - Cramer's Take), offered about $3 billion for the business, but Lear's shareholders have rejected the bid -- going against the recommendation of their board of directors, according to Reuters.

Whenever a big potential buyout like this is in the news, I like to see how the companies involved fare using my guru strategies, computer models that each mimic the philosophy of a different Wall Street great. Interestingly, my models have little interest in Lear (or in Icahn's real estate company, incidentally). The big losses that the auto-parts maker has posted over the past two years, along with its $2.4 billion in long-term debt, indicate that the company is not standing on firm financial ground.

There are, however, a handful of auto-parts manufacturers that do get the nod from my guru-based strategies. Here's a look at why my models like them better than Lear.

LKQ

LKQ (LKQX - commentary - Cramer's Take): With more than 100 facilities across the country and a market cap of $1.53 billion, Chicago-based LKQ bills itself as the largest nationwide provider of recycled light-vehicle OEM, or original equipment manufacturer, products and related services.

The company procures salvage vehicles from auctions, insurance companies or vehicle manufacturers. It then dismantles them and, along with aftermarket collision replacement products it buys from manufacturers, resells the parts to auto collision repair shops or service centers, insurance companies and extended-warranty companies.

Last Tuesday, LKQ announced that it had reached an $811 million deal in which it would acquire Keystone Automotive Industries (KEYS - commentary - Cramer's Take), a major manufacturer (and re- manufacturer) and distributor of aftermarket vehicle collision replacement parts. The move was the latest in a slew of acquisitions LKQ has made over the past two years.

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At the time of publication, Reese was long Applied Industrial Technologies, although holdings can change at any time.

John P. Reese is founder and CEO of Validea.com, an investment research firm, and Validea Capital Management, an asset management firm serving affluent investors and companies. He is also co-author of the best-selling book, The Market Gurus: Stock Investing Strategies You Can Use From Wall Street's Best. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Reese appreciates your feedback. Click here to send him an email.

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