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To: Lucretius who wrote (58463)	8/24/1999 11:07:00 PM
From: John Pitera	Respond to of 86076

Hey when I saw the Barron's interview last week I had a hard time believing it too. It shows that the market misprices stocks at times. check this out, he thinks NAV could go to 100 or 150....... Q: It's time to pick some stocks. A: Navistar International is a really good example of the way I invest. I started buying the stock three years ago at 9 and 10 and have continued to buy it. Initially, it had $9 cash a share, no debt and was trading at three times earnings and 2.25 times EBITDA. I recently bought it at 45. I think it's worth well over 100, maybe approaching 150. Q: Why? A: This is a misperceived company. Most people see it as a maker of heavy-duty trucks. In reality, it's a growth story about diesel engines. Roughly 65% of Navistar's profits come from diesel engines. Heavy trucks account for less than 5% of earnings. Pretax or cash earnings will be $9-$10 a share in the year ending October 31. They'll report net income of about $5.50 a share, with more than $1 billion of net operating loss carry forward still left. Q: The truck business appears to be consolidating. A: Correct. Rapidly. A recent deal saw Volvo agree to buy Scania. At the multiple that Volvo's paying, Navistar would be worth about 150. Its management is working diligently to create value for shareholders. I think you'll see Navistar participate in this consolidation trend. Q: In what way? A: I think they'll de-emphasize their truck business and focus more on diesel engines. They could sell their truck division and acquire someone else's engine business, or merge their engine unit into somebody else's engine business. I think you'll see some sort of restructuring along those lines. Q: Will Navistar be a surviving, standalone company? A: I don't know. The industry is consolidating rather rapidly. It would be pure speculation to say how they'll end up. I do know this: They'll participate in a way that benefits shareholders. Meanwhile, the company has been buying back stock. They'll buy about $165 million worth this year, after $100 million-plus last year. I wouldn't be surprised to see another buyback authorization within 30 days. Navistar is wildly undervalued. They have $1 billion of cash, and an engine contract with Ford that increases deliveries annually for the next 10 years. If Navistar sold its truck business for, say, $2.5 billion and used its cash to buy in stock and merge its engine business with another engine company, you could have a stand-alone company generating earnings of $10 a share. At a comparable multiple to other engine companies, this entity could be worth 150 a share. Q: What's the big picture in diesel engines? A: Until the past couple of years, the technology hadn't changed much. Navistar has been a real leader. They developed the next generation of diesel engines, which are considerably more performance-oriented and fuel-efficient. These engines are being installed in a large number of vehicles. Q: Worldwide, or what? A: Mainly in the U.S. at this point. Q: Who else makes diesels? A: Cummins Engine and Detroit Diesel, among others. Q: Was Volvo's bid for Scania at a premium to its market price? A: Yes, a 40% premium to the prior day's close. Q: One analysis of Navistar continues to emphasize its truck business. A: For some reason, the analytical community hasn't evolved with the company. Engines now are a significantly higher percentage of EBITDA than they were a few years ago. Q: What's likely to happen to engine sales if the U.S. economy slows? A: Even if it does slow, I think you'll see an ever-increasing percentage of vehicles using diesel engines. They're considerably more fuel-efficient and environmentally efficient than other types, with less emissions.