Heavy machinery stocks have enjoyed a strong rebound on the improving outlook for 2021, with names like Caterpillar (CAT), Deere (DE), and Terex (TEX) performing well over the last year (up 60% to 90%). PACCAR (PCAR), though, has been a different story, with the shares outperforming the broader industrial space but underperforming cyclical heavy machinery peers.
Some of the problem may be PACCAR’s quality. Paradoxical as it sound, cyclical rallies often don’t benefit superior operators quite as much, and PACCAR has an excellent track record relative to the broader heavy machinery space where metrics like long-term margins, cash flow, and returns on assets are concerned.
Given that Cummins (CMI), another exceptional company, has managed to outperform (though not as much as non-truck heavy machinery companies), though, it may well be something more PACCAR-specific, including worries about margin pressures and a shorter run to the next peak in the truck cycle.
I could see PACCAR retesting and surpassing its recent 52-week high, but I don’t see that much upside left in this upcycle and peak-to-trough moves in these shares have often seen the price decline by roughly a third. This would definitely be a name I’d revisit on a sell-off, but I don’t like the risk/reward trade-off right now.
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