Paccar is undervalued

Posted Jul 6th 2009 1:00PM by Joseph Lazzaro
Filed under: Stocks to Buy

Any experienced investor who has followed emerging markets knows that the global recession and accompanying decline in international trade has weighed on the truck manufacturing sector.

But now that it appears the global recession has bottomed, more-pleasant times are likely to return to the sector, which bodes well for PACCAR Inc. (NASDAQ: PCAR).

Look for PCAR's heavy truck segment to start to improve near the end of FY2009, with the drive to replace higher-emission trucks with lower-emission trucks providing an additional tailwind. Further, raw material costs are moderating.

In addition, shares have already priced-in continued softness in the developed world's North American market, so any upside surprise in that region will help shares move north. The First Call F2009/F2010 EPS estimates for PCAR are 46 cents to $1.21.

The qualifiers include a delayed global economic recovery, which would substantially hurt emerging market sales; still, with institutional investors sensing a better FY2010, the risk/reward is tipped toward the Buy for PCAR.

Stock Analysis: Paccar is a moderate-risk stock. Consider buying a 25% position in PCAR now; then buy another 25% in four months, if U.S. economic conditions don't worsen substantially. Under any circumstance, don't buy more than 50% of your PCAR position before October 2009. Sell/stop loss if you were to buy shares in this company: $17.

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Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.

Tags: Paccar, PCAR