Want to own a piece of the automotive industry without buying into the big auto companies?The Oshkosh Corp. (OSK, Financial) could be a good investment.
Oshkosh is, among other things, "the largest supplier of light defense trucks to the U.S. military." Defense production is one of four segments in which the company operates, according to its 10-K for 2019:
- Access equipment (49% of revenue) refers to lift vehicles that allow workers to access high workspaces without the use of ladders. Operating through a company called JLG, it designs and manufactures aerial work platforms and telehandlers.
- Defense (24%): In 2015 Oshkosh won the military contract to make a Humvee replacement, the Joint Light Tactical Vehicle. According to the company, it makes tactical light, medium and heavy wheeled vehicles for the Department of Defense: "Oshkosh Defense designs and manufactures vehicles that perform a variety of demanding tasks such as hauling tanks, missile systems, ammunition, fuel, troops and cargo for a broad range of missions."
- Fire and emergency (15%): The company makes Pierce fire engines and calls itself "the leading domestic designer and manufacturer of fire apparatus assembled on custom chassis, designed and manufactured to meet the special needs of firefighters."
- Commercial (12%): Through Oshkosh Commercial, London and CON-E-CO, it designs and manufactures front- and rear-discharge concrete mixers and portable and stationary concrete batch plants. Through McNeilus, it designs and manufactures refuse collection vehicles.
Why should investors consider Oshkosh? Reviewing some recent articles about the company, fellow GuruFocus contributors have highlighted these reasons:
- '4 Farm and Construction Machinery Companies With High Financial Strength' by James Li (July 17, 2020).
- 'Top Value Stocks Trading Below Revenue' by Margaret Moran (January 30, 2020).
- '6 Stocks With Low Price-Earnings Ratios' by Tiziano Freteschi, (January 23, 2020).
It's true that a couple of those articles predate the Covid-19 crisis and its economic side effects. However, most of the fundamental metrics still apply. The global economic slowdown has hurt earnings this year, but looking five to 10 years ahead, I would expect the company to return to a growht phase.
Starting with financial strength, the GuruFocus system tells us Oshkosh still has a 7 out of 10 rating. That's strong, and as we can see in the chart below, the company has also been reducing its debt:
The Piotroski F-Score comes in at 6 out of 9, which is typical for a mature company. Turning to its Altman Z-Score, Oshkosh has an Altman Z-Score of 3.62, indicating it is in Safe Zones.
The company enjoys a small but positive margin when comparing the weighted average cost of capital (WACC) and the return on invested capital (ROIC). This means the company is creating value for its shareholders.
Operating margins have increased during the previous five years, and Oshkosh's returns have outperformed those of more than 90% of global machinery companies.
After two quarters of tightened economic circumstances, the company has a market cap of $5.09 billion and TTM (trailing 12-month) revenue of $7.268 billion. Dividing the former by the latter, we get a price-sales ratio of 0.7 (this number is also shown on the Summary page). Note that a ratio of less than 1.0, which is the case here, is considered very good for the industry (price-sales ratio comparisons only make good sense within industries).
The third strength is a low price-earnings ratio. At the close of trading on Oct. 27, the price-earnings ratio was 13.54, which is well below the industry median of 18.33 for the Farm & Heavy Construction Machinery industry. It's also about a point above its own median for the past 10 years.
To put the price-earnings ratio into context, we can review the PEG ratio, which gives us a measure of a company's valuation in terms of its five-year Ebitda growth. The PEG ratio currently sits at 1.04, which indicates the stock is fairly valued.
We get the same conclusion from the GuruFocus Value chart:
Note that the stock is roughly halfway between its recent highs and lows.
Finally, the investing gurus followed by GuruFocus have been buying and selling shares on a roughly even basis, with the exception of the first quarter of 2019, when they went on a selling binge:
At the end of the second quarter of this year, seven gurus had positions in Oshkosh. The three largest were:
- Pioneer Investments (Trades, Portfolio), which added 6.45% to its investment during the recent quarter, now owns 221,546 shares, representing a 0.33% share of the company.
- Mairs and Power (Trades, Portfolio) had the second-largest position with 157,370 shares after a 5.42% reduction during the quarter.
- Chuck Royce (Trades, Portfolio) of Royce & Associates added 8.06% in the quarter to finish with 40,900 shares.
Conclusion
I have often found that simply scanning headlines about a stock can provide a good starting point for analysis. They can point the way to profitable avenues of assessment and evaluation.
Oshkosh Corporation is a stock worth watching. It is financially strong and has four segments where growth has been strong in the past, and may be again in the reasonably-near future. We have at least two reasons for believing it is fairly priced.
Growth investors may find this a reasonable starting point for a stock that has delivered significant capital gains over the past decade. Value investors will need more of a dip, but this stock has a set of solid financials. Income investors will likely turn to other stocks, given that the dividend yield is only 1.64%.
Disclosure: I do not own shares in any of the companies named in this article.
Read more here:
- Universal Display: A Saw-Toothed Price Chart Means We Need to Wait
- Jack Henry & Associates: A Low-Debt Tech Stock
- ITT: Why Investors Like This Often Unsteady Manufacturer
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