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Stock Strategist

This Stock Will Keep On Truckin'

We think the market is too focused on near-term farm equipment headwinds and not enough on a cyclical European trucking upturn.

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We believe  CNH Industrial (CNHI) currently offers investors a decent margin of safety for long-term returns, but we don't think it has built an economic moat. However, we believe the market is overlooking opportunity for internal profitability improvement at Iveco, the firm's Europe-focused trucking segment. On top of this potential for better margins, we think Iveco will enjoy end market recovery in 2014 and beyond following several challenging years.

CNHI is the late-2013 merger of farm and construction equipment manufacturer CNH Global and its parent company, Fiat Industrial (which owned Iveco and Fiat Powertrain engines). The firm has enjoyed strong farm equipment markets recently (roughly 50% of total sales) but challenged construction (10%) and trucking (34%) businesses. Over the next several quarters, we expect these prospects to reverse; lower global farm income and difficult comparisons are likely to threaten CNH's ag machinery sales, but an improved construction picture and trucking market should help the company still increase earnings.

Adam Fleck does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.