Carl Icahn and other Insiders are Buying at Navistar: Should You?
Jonathan is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Billionaire Carl Icahn, one of the best investors in history, has been recently buying the shares of Navistar International (NYSE: NAV), which manufactures and sells engines and trucks, among other components and services.
Icahn is not the only insider buying at Navistar International. Mark Rachesky, a former protege of Carl Icahn, bought over one million shares in three separate transactions in June and July. These were all on the open market, not the exercising of options.
Due to the decline in global economic growth, particularly in China, stocks in the industrial machinery sector with very appealing futures are selling at very alluring discounts, at present. Navistar, down 40.89% for 2012, has a price-to-sales ratio of 0.11. A dollar of sales for Navistar can be bought at almost a 90% discount. The price-to-earnings growth ratio for Navistar is 0.09. Peter Lynch, another legendary investor, considers this to be one of the most important ratios. A price-to-earnings growth ratio of 1 is adequate: the lower the better. This shows up in the price-to-earnings ratio for Navistar of just 1.33, when it is about 14 for a member company on the Standard & Poors 500 Index. The forward price-to-earnings ratio for Navistar is 7.44.
Also in trucking, Paccar, Inc (NASDAQ: PCAR), is famous for its products sold at Kenilworth and Peterbilt dealerships around the world. Down 2.81% for the last quarter, Paccar is selling cheap with a price-to-sales ratio of 0.77, a price-to-earnings growth ratio of 0.83, and a price-to-earnings ratio of 11.58.
Cummins Inc (NYSE: CMI), of diesel engine lore, is another heavy machinery company selling cheap based on valuations. The price-to-earnings-to-growth ratio for Cummins Engine is only 0.69. Its price-to-earnings ratio is only 9.72. On a quarterly basis, earnings-per-share growth has increased by 36.34% while sales growth is up 15.85% for the same period. Cummins Engines is down 7.21% for the last quarter of market action.
A builder of heavy duty trucks in addition to cars, until last year Toyota Motors (NYSE: TM) sold more motor vehicles than any other company. It was supplanted by Volkswagen (NASDAQOTH: VLKAY), which sold more than 8 million in 2011. Both Volkswagen and Toyota sell heavy-duty models, medium versions, and pick-up trucks. Toyota pick-up trucks and sports utility vehicles have achieved almost a mythical status in the developing world due to being so rugged and reliable.
These stocks will all rebound when growth is restored around the globe. China, Brazil, and other countries needing increased trucking operations of all types still have economies that are still expanding, but the rate is down from the recent peak years. The high level of institutional ownership at each company manifests the investment appeal, though, and positive future outlook for trucking. When institutional investors, such as mutual funds and pension groups buy a stock, it is a bullish sign for a company. Institutional investors have deep research resources and are heavily courted by companies to buy shares.
At Navistar International, institutional ownership is at 89.50%. A tad lower, Cummins Engine has institutional ownership of 89.49%. Pacaar has institutional ownership of almost 60%.
Attracting institutional investors and others, in part, is the solid dividend income. The dividend yield for the average company on the Standard & Poor's 500 is around 2%. Volkswagen provides a dividend yield of 2.44%. At Cummins, the dividend yield is 2.02%. Dividend income flows at a 2.01% rate from Pcaar. Toyota Motors has a dividend yield of 1.56%.
The insider buying makes Navistar International particularly attractive in the current market. Peter Lynch said that while there are many reasons for insiders to sell, there is only one reason for an insider to buy: the expectation that the share price will rise. While insider buying from Carl Icahn and others is a positive sign for the short term prospects of Navistar International, the long term outlook for these companies in the various sectors of the trucking industry is very bullish.
jonathanyates13 has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Motley Fool newsletter services recommend Cummins and PACCAR Inc. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.