Navistar (NYSE: NAV), the truck- and diesel-engine maker formerly known as International Harvester, recently reported earnings that were 10 percent below expectations. Fourth-quarter earnings dropped 55 percent over last year’s fourth quarter. Full-year profits dropped 32 percent, with revenue growth anemic at just 5 percent for the year. Yet not all is lost.
Check out a key reason for the earnings drop: Navistar inked a new four-year contract with the UAW. That cost it $0.14 per share in fourth-quarter profit, but secures the company against similar labor-cost surprises for the next four years, and gives the company a contented work force as it moves into 2011.
Better still, Navistar may well blow all these numbers away next year. CEO Daniel Ustian says that “the North American truck market has been depressed for three years.” But Ustian expects to generate “solid returns to our bottom line in 2012 and 2013.” Why? Because North American trucking is about to take its foot off the brake, as ancient trucking fleets turn over, and trucking companies make good on their promises to buy newer, more fuel-efficient, less accident-prone rigs.
Analysts expect this trucking renaissance to keep Navistar’s profits growing at an annualized 9.3 percent pace over the next five years.
Ask the Fool
Q: Should I keep my original stock certificates in my bank deposit box, or should I let the company keep them for me? – T.G., Riverside, Calif.
A: These days it’s routine for brokerages to hold stock certificates for investors, registering the shares in “street name.” This offers several advantages. For one thing, you don’t have to safeguard the papers and won’t lose them. Also, whenever you want to sell, you don’t have to mail them back to the brokerage, which can take several days.
My dumbest investment
Back in 1999, I bought shares of a company that facilitates business-to-business commerce and communications for about $45 apiece. The stock quickly went north of $1,000 per share, but I didn’t sell. I still own it, and it’s been trading in the $20 range recently. – M.T., online
The Fool responds: Many people jumped into the booming market in 1999, not wanting to be left out. Few were asking themselves whether the prices they were paying were reasonable, and even when prices must have seemed overly inflated, they didn’t sell.
Consider that in early 2000, AOL announced plans to buy Time Warner for more than $160 billion, creating a $350 billion company. Today Time Warner’s market cap is around $36 billion, and AOL, which it spun off, is valued below $3 billion.
E*TRADE, which traded for around $16 recently, had a split-adjusted price above $500 per share back in 1999! Did investors really think the company was worth that much then? Many surely didn’t, but greed and shortsightedness won out. Buy stocks at good or fair prices and consider selling when they significantly exceed their real worth.