3 Stocks Trucking Forward in 2014

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So far, 2014 has proven a slow year for most investors, with the S&P 500 barely breaking above even since the start of the year. But some industries — like trucking stocks — are having a great time.

arrow-with-dollar-signBenzinga reported April 1 that BMO Capital Markets expects the trucking industry to move on down the road in 2014. Analyst Joel Tiss suggests “earnings appear set to continue improving on double-digit volume growth largely driven by pent-up demand.” Most importantly, Tiss points out, truck fleet utilization in North America is such that a shortage of 70,000 trucks exists.

Which companies will benefit most from the improving business climate? Here are three of the best trucking stocks to buy.

Stocks to Buy — Rush Enterprises (RUSHA)

Rush Enterprises 185Rush Enterprises (RUSHA) operates the largest network of commercial vehicle dealerships in North America, providing sales, service and parts to commercial vehicle owners at more than 100 locations across the southern U.S.

In 2013 RUSHA generated $3.4 billion in revenue with an operating profit of $91.8 million. All five of its revenue streams experienced year-over-year revenue growth in 2013 including a 21% increase from parts and service, its second-largest behind only new and used commercial vehicle sales.

CEO Rusty Rush said this about 2014 in its Q4 earnings release, “With the economy gaining momentum, order intake climbing in the last few months, and improved activity in automotive, housing, construction and energy sectors, we believe retail sales could improve in the second half of 2014.” That’s pretty much the same thought held by BMO Capital Markets.

If RUSHA maintains 5.1% market share it will sell 10,889 Class 8 trucks, 14% more than this past year. At an average of $136,200 per truck, the 14% uptick is worth an additional $183 million in revenue and approximately $12 million in gross profit. It might not seem like a lot, but in a business where 3% operating margins are the norm, that’s huge.

I like RUSHA for two reasons: First, its business is clearly growing. Secondly, it hasn’t lost money over the past decade which is no small feat given the trucking industry took it on the chin between 2008 and 2011. That’s the sign of a well run company and it’s why owning its stock over the long haul will reward you handsomely.

Stocks to Buy — Wabash National (WNC)

Wabash NationalWabash National (WNC) is best known for making the trailers that go on the back of trucks, and the company had a record year in 2013. Trailer fleets are rapidly aging, and there’s already a shortage of 70,000 trucks on the road. That makes WNC attractive, even after its 14% increase in 2012, 38% jump in 2013 and the 11% gain year-to-date through April 3.

In the span of three fiscal years, Wabash has gone from being a one-trick pony selling commercial trailers to a business with two legitimate business segments and third slowly growing into its own. In 2010, all of its revenues came from manufacturing trailers that were then sold to other retailers or through its own retail branch network.

There was nothing wrong with the business, but management felt it would be wise given the cyclical nature of the trailer business if it became a diversified manufacturer of industrial products.

Several acquisitions later, its diversified products segment represents 28% of its consolidated revenues and 54% of its gross profits. As a result of this transformation WNC finished 2013 with record revenue of $1.64 billion, record gross profits of $215.1 million and a 200 basis point improvement in its gross margin.

Things are clicking across all three business segments. Although it has gained 11% in 2014, I believe WNC remains one of the best stocks to buy in trucking today and into the future.

Stocks to Buy — Wabco Holdings (WBC)

Wabco Holdings 185Wabco Holdings (WBC) has been on my radar for quite some time. Last July, it was one of two auto parts stocks I recommended to InvestorPlace readers. At the time, its stock was testing its 52-week high of $81.11. Since then it’s up 33% through April 3 compared to 13% for the SPDR S&P 500 (SPY). Fast forward to today; Wabco Holdings is sitting within 4% of its 52-week and 5-year high of $109.

Back then, I threw caution to the wind because the company was upping its guidance by a significant amount despite a struggling commercial truck business. Well, now it appears that things are firming up for the industry as a whole and that means more good news for the company and for investors like Berkshire Hathaway (BRK.B), which owns 4.1 million shares of its stock.

WBC expects to convert between 80% and 90% of its net income attributable to the company into free cash flow in 2014. It said the same thing last year and managed to deliver a free cash flow conversion rate of 88%.

Assuming the same rate in 2014, its free cash flow per share should be at least $4.66 per share (performance EPS of $5.30 times 88%), which suggests a free cash flow yield of 4.4%. Anything over 10% is attractive to value investors. So, anyone interested in owning great companies at fair prices shouldn’t have a problem owning WBC shares.

When it comes to trucking stocks to buy for the next 12-24 months — or better still forever — all three make great stocks to buy.

As of this writing, Will Ashworth did not own a position in any of the aforementioned securities.

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.


Article printed from InvestorPlace Media, https://investorplace.com/2014/04/trucking-stocks-to-buy-wbc-wnc-rusha/.

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