Home > News & Commentary > Boom in American Trucking? (NAV, BNI)

Boom in American Trucking? (NAV, BNI)

Morningstar has published an analysis of the future of American Trucking (here, via The Business Insider). The industry has been hard hit by the general economic slowdown, but especially the halting of many new residential and commercial real estate projects.  However, due to several factors that have been building over the past few years, the article is extremely optimistic about the short term and long term prospects for the industry.  Here are the reasons:

First, the recession has slowed the replacement cycles for a lot of operators, and as such there are more antiquated vehicles on the road.  Due to the natural replacement cycle of these machines, eventually the delay will have to be caught up.

Secondly, new, stricter emissions regulation will mean that it is more economical for truckers to purchase new trucks than to upgrade their existing vehicle.  This will be of great benefit to Navistar (NAV), which owns the International brand and is one of the better manufacturers in terms of efficiency. I bought NAV about 2 months ago, and have since taken a bath on that investment, but remain optimistic about its prospects especially given its low valuation.

Finally, Morningstar foresees continued improvement in the economic environment, which could lead to more development and therefore more demand for trucking and trucks.

For NAV, I continue to be impressed by their low valuation.  The average analyst expectation for fiscal ’10 is $3.48, so given todays close of $34.28, they are trading around 10 times forward earnings.  This compares favorably to a PE of approximately 25 for the industry.  I also feel that the industry is due for a recovery.  Warren Buffet, with his pending deal for BNI, has recently touted the economic advantages of rail over road.  But the simple fact is that in this country the rail networks are not substantial enough to have the entire country served by rail.  I feel that a bright future is in store for trucking, and my conduit to profit from this trend is NAV.

-AH

Disclosure: Long NAV, no position in any other stock mentioned.

Advertisements
  1. No comments yet.
  1. No trackbacks yet.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: