A Stock That Fires On All Cylinders

To find hidden investment gems, you need to look beyond the glamorous “story stocks” touted by the well-coiffed narcissists on CNBC. Trucking is a boring industry, right? Not if you like big profits at a discount, as I explain below.

Transportation is a classic recovery play, but investors who want to leverage the pandemic-era economic rebound should remain selective about cyclical stocks, because many of them could tank if COVID takes a turn for the worse and overall growth sputters.

The shrewder approach is to find cyclical companies that are undervalued, with unique competitive advantages that allow them to dominate their respective markets and avoid getting clobbered during downturns.

Wabash National Corp. (NYSE: WNC) hits all those criteria. Wabash gets almost no coverage in the financial media, and that’s good news for investors who seek significant projected growth combined with value.

Wabash is a leading manufacturer of semi-truck trailers. The company designs, manufactures and markets transportation-related products in North America; its core business is standard and customized semi-truck trailers. Wabash also makes equipment that’s “intermodal,” which is containerized freight that can travel via truck, rail or ship.

Wabash is enjoying the boost that trucking gets from increased economic activity, while also diversifying into technology solutions that enhance the operational efficiency of its customers.

In addition, the company is benefiting from pent-up demand for fleet replacement and enhancement among trucking operators who are only now shaking off the trauma of the COVID-induced recession.

The upshot: Wabash is a cyclical bet with downside protection.

Headquartered in America’s Heartland (specifically, Lafayette, Indiana), the company sports a market cap of $908.3 million and operates in three segments: Commercial Trailer Products, Diversified Products and Retail.

Commercial Trailer Products manufactures truck trailers, dry van trailers, refrigerated trailers, steel and aluminum flatbeds, and drop-deck trailers.

Diversified Products provides technology solutions to transportation companies. Retail operates nationwide branch locations that sell new and used trailers, aftermarket parts and services.

Wabash’s products are sold under well-known brand names that are familiar to any truck driver who makes a living on the road: Wabash National, Transcraft, Benson, DuraPlate, ArcticLite, Brenner Tank, Beall, Garsite, Progress Tank, and many more.

Founded as an entrepreneurial start-up in 1985 and publicly traded since 1991, Wabash is thriving because the trucking industry is a leading indicator for the overall economy. During the early stages of a recovery, customers start to ship more goods in expectation of stronger business conditions.

Trucks move roughly 72.5% of the nation’s freight by weight. The trade group American Trucking Associations (ATA) predicts that trucking volumes will rebound, rising 4.9% next year and then growing 3.2% per year on average through 2026. Overall freight revenues in 2020 totaled $879 billion, a number that’s expected to reach $1.435 trillion in 2031. Freight rates are picking up as well.

The following chart shows the steady rise in truck tonnage (data as of October 2021). Notice the sharp rebounds after the last two recessions:

These trends spell greater demand for Wabash’s trucks, products and services. Wabash is gaining even greater leverage from the recovery because of the past reluctance of many trucking operators to replace or even repair aging trailers. Now that the recovery appears real and entrenched, these firms are whittling away at their backlog of deferred repair and replacement work, providing a multiyear stream of work for Wabash that should withstand cyclical volatility.

To further mitigate any vulnerability to economic ups and downs, Wabash also has been diversifying its business. Notably, its Diversified segment offers products that enhance the aerodynamics and fuel performance of semitrailers.

This sort of innovation sets Wabash apart from competitors such as Trinity Industries (NYSE: TRN), a larger company (market cap: $2.7 billion) that caters to several industries and lacks Wabash’s tight focus on the development of new trucking technology.

A non-competitor to Wabash that’s a major beneficiary of these trends is FleetCor Technologies (NYSE: FLT), the world’s leading provider of fleet cards and related payment processes for the trucking industry. I profiled FleetCor in a November 5 Stocks to Watch article and it’s another good long-term play on the trucking renaissance.

Tough enough…

Wabash is an early adopter of advanced, super-tough composite materials for its manufacture of trucking semi-trailer and truck body components. Composites are polymer materials reinforced with carbon fiber, forming a strengthened combination that’s light, flexible and durable.

The next decade will see an explosion in the use of composite materials, in a variety of applications that include cars, trucks, and aerospace. Wabash got ahead of the composite curve and is now a leading provider of these materials for its customers.

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Wabash also is a play on the resurgence of the railroad sector, through the offering of its RoadRailer, a lightweight, dual-mode trailer that provides a hybrid of highway and rail transportation. The company has expanded its intermodal offerings to include freight car running boards, crossover platforms and brake steps.

Both the trucking and rail industries are viewed as bellwethers and are closely watched by analysts who seek to divine the direction of the broader economy. Wabash has managed to place a foot into both camps. According to the ATA, intermodal rail will continue to be the most efficient and fastest-growing freight mode. Wabash plays an integral part of efforts to alleviate pandemic-caused supply chain disruptions.

Wabash announced on December 1 that its backlog ending November 30 exceeded a record $2.3 billion, an increase of $400 million from the third quarter of 2021.

With a 12-month forward price-to-earnings (P/E) ratio of only 30.4, Wabash’s stock trades at a hefty discount. The company’s projected earnings growth is off the charts, but the investment herd hasn’t noticed.

Wabash is projected by the consensus of analysts to rack up year-over-year earnings growth of 216.70% for the fourth quarter of 2021, 306.70% for full-year 2021, and 175.40% for full-year 2022. I like Wabash’s small-cap status, which confers greater opportunity for market-beating stock price appreciation.

As cyclical sectors gain in appeal, I’m also keen on commodities. Accelerating economic growth and greater global infrastructure spending are boosting demand for crucial commodities, many of which are in short supply. For details about our favorite play on natural resources, click here now.

John Persinos is the editorial director of Investing Daily. To subscribe to John’s video channel, follow this link.