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Strategies & Market Trends : Value Investing
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To: cfimx who wrote (10158)3/11/2000 3:50:00 AM
From: James Clarke  Read Replies (2) of 78525
 
The old economy is still alive and well at PACCAR in Seattle (PCAR). The company makes trucks. Peterbilt - check out your rear view mirror when you're driving and look for Peterbilts. Very cyclical, right, and earnings are at a peak. The stock is a buy. It has held a $40 support level despite the fact that the truck backlog has gone from bad to worse news, and despite the fact that the entire industrial sector has collapsed on the stock market. By Mike Burry logic, you buy this at 41 and put in a stop loss at 38 or 39. So you've got 6% downside. Now lets look at the upside.

Truck orders have been falling for a year now and the backlog is half what it was at the peak. That's my contrarian buy signal for Paccar if the valuation is right.

$3.2 billion market cap with 700 million of that in net cash. So call it $2.5 billion for the enterprise. The company earned $500 million in free cash flow in the last nine months. 2000 earnings will decline. Well, duh.

I estimate they earn about 16% ROE over a cycle unleveraged - and its probably even more than that if you completely deleverage them - i.e. back out the cash and restate the equity based on that. Great company in a lousy industry. Don't get scared off by the industry until you look at the balance sheet and understand that this company has not lost money in 50 years. I visited them in 1998 - probably the most frugal manufacturing operation I ever saw firsthand with the possible exception of Clayton Homes. If you know anybody who knows trucks ask them what the best truck is and they will probably say Peterbilt - that brand is like BMW in the truck business, where resale value is half the game. The company is controlled by a family and they run it like owners - i.e. they don't care what the stock price is today but they sure care what it is ten years from now. But they recently did start buying back a few shares, which was a big step for PACCAR. The dividend is huge - don't forget to add the special year end dividend based on earnings - screens always have the dividend yield on Paccar wrong.

If anybody can find a hole in this I'd appreciate it. What I didn't mention above is the finance sub, which is probably where we should be doing our digging.
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