Over the last three years, truck manufactures have “massively underproduced,” Cramer said, well below the rate that’s needed to simply replace existing vehicles. And with the average age of a truck fleet is at 20-year highs, a major replacement cycle is coming. As demand picks up, the related companies should see a significant rise in revenues.
Beyond merely replacing these trucks, though, there’s a coming upgrade cycle as well. Within the next five years, countries from the US and Mexico to Australia and India to Brazil and Russia, and those in the European Union, too, will adopt higher diesel-engine emissions standards. In effect, entire truck fleets will need an upgrade to a more modern engine that complies with these standards.
The replacement cycle alone has caused a “huge boost in sales,” Cramer said, as evidenced by today’s strong May truck order numbers. And he thinks the coming upgrades bode very well for this sector, too. In fact, he likened the present situation in trucks to where autos where a year ago: the beginning of a recovery that hasn’t yet been priced into the stocks.
So which companies do you buy?
Cramer likes Cummins , Navistar and Paccar . Cummins, maker of diesel and natural-gas engines, electric power generation systems and other engine-related products worldwide, is the best-of-breed name here. For those who want a bit more risk, try Navistar. With 80% of sales coming from the US, it offers the most exposure to a truck recovery here. Paccar, meanwhile, is the value play. The stock’s down 14% from its $48 high on May 3, and it’s trading at just 10 times normalized earnings with an 11% long-term growth rate.
If you’re going to pick just one, Cramer said to go with Cummins. But regardless of which you buy, wait for them to come in before starting a position.
When this story published, Cramer's charitable trust owned Cummins.
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