Not a textbook Buffett stock because it is cyclical, but Paccar is one interesting company. A leading producer of class-8 trucks, this company has made money in each of the last 40 years in a very cyclical business. I don't think now is the time to buy it as the truck cycle is coming off a peak, but it might be one to get to know and put in a mental buy order at 40. It will get there sometime in the next twelve months when the truck cycle breaks. In brief, they do about 16% on equity averaged through a cycle. At peak they are earning about 22% on operating assets and even earning 9% on the ASSETS of their finance sub. They have 600 million of net cash on their balance sheet. The most conservative management you will ever find. Right stock, maybe the wrong time. The stock looks very cheap now, trading at 3.8 times EBITDA, but it probably takes a leg down when the earnings outlook deteriorates. For the next two quarters though, I think they blow out estimates with growth of about 25% off pretty good '98 numbers.
Another industrial cyclical it is time to watch is John Deere. Corn, wheat and soybean prices are all testing record lows again, and I think Deere is ready to drop again. It bottomed at 30 last year, and 30-31 looks like another good entry point to look for in about a month (Deere tends to get decimated in July-August, then rebound strongly in the fall). I think the stock could get as low as 25, but I think the risk of missing it is worth paying 30-31 with the possibility of not quite getting the bottom. Deere at 31 August 15th. You heard it here first.
JJC |
