A Stock That's About to Put The Hammer Down

By John Persinos • June 9, 2023 • Stocks to Watch

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, so with a recession looming on the horizon, it seems counterintuitive to recommend the trucking industry as an investment opportunity.

Well, I turn your attention to the wisdom of my colleague Dr. Joe Duarte, who wrote in his Stocks to Watch column on June 8:

"[Let's review] the price chart for the SPDR Transportation Index ETF (XTN), which shows that according to the trading crowd, the worst may be over for the transports, and thus possibly the economy. I base this on the fact that XTN has rebounded above its 200-day moving average and is in the early stages of what could be a meaningful price breakout.

"A deeper dive shows the Accumulation Distribution Indicator (ADI) and On Balance Volume (OBV) are starting to rise after the shellacking the ETF took in late 2022. This is cautiously bullish, which suggests investors are moving money into the transportation sector, just as the bad news is starting to pile up. As a contrarian, I like this scenario."

Dr. Duarte is chief investment strategist of our premium trading service, Profit Catalyst Alert. He's also a skilled technical trader, and when he detects a trend among key indicators, I sit up and pay attention.

Most analysts predict a recession this year; they also think it will be short and shallow. If the Federal Reserve announces a pause in tightening at its policy meeting next week, the economy could enjoy a tailwind. However, investors who want to leverage a possible economic rebound should remain selective about cyclical stocks, because many of them could tank if the slowdown suddenly gets worse.

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 diversifying into technology solutions that enhance the operational efficiency of its customers. In addition, the company has been benefiting from pent-up demand for fleet replacement and enhancement among trucking operators who are only now shaking off the trauma of the pandemic-induced slump.

The upshot: Wabash is a solid bet on a transportation sector rebound, with lots of downside protection.

Headquartered in America's Heartland (specifically, Lafayette, Indiana), the company sports a market cap of $1.2 billion 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 an icon in the trucking subculture and a bellwether for the overall economy. Trucks move 72.2% of the nation's freight by weight, according to the American Trucking Associations (ATA).

ATA predicts that overall freight tonnage will grow to 20.6 billion tons in 2030, up 25.6% from 16.4 billion tons in 2019. Freight industry revenues are projected to increase 53.8% to $1.601 trillion over the next decade.

The following chart shows truck tonnage trends (data as of April 2023). Notice the sharp rebounds in the immediate wake of recessions (shaded areas indicate U.S. recessions):

These trends spell long-term demand for Wabash's trucks, products and services. Wabash has gained even greater leverage in recent months because of the past reluctance of many trucking operators to replace or even repair aging trailers. This year, these firms have been 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). With a market cap of $1.9 billion, Trinity caters to several industries and lacks Wabash's tight focus on the development of new trucking technology.

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 future growth 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.

Combined passenger and freight activity in the railroad sector is projected to more than double by 2050, according to the International Energy Agency.

Both the trucking and rail industries 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.

With a trailing 12-month price-to-earnings (P/E) ratio of only 8.7, 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 187% in the current quarter, 30.10% next quarter, and 30.10% for full-year 2023. Those are impressive numbers, considering the S&P 500's current earnings recession.

I like Wabash's small-cap status, which confers greater opportunity for market-beating stock price appreciation. But Wabash's valuation also is knocking on the door of mid-cap territory, which puts the company in the sweet spot for growth. The company is small enough to "move the needle," but big enough to enjoy greater stability.

Wabash's stock recently overtook its 20-day moving average, which suggests a bullish trend. Now's the time to jump aboard.

PS: By using the methodologies described in the article above, Dr. Duarte has pinpointed a tiny, unknown company that has developed a revolutionary "black box" technology. You need to get in on the ground floor of this game-changing opportunity before Wall Street takes notice and the share price soars. Click here for details .

John Persinos is the editorial director of Investing Daily.

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