A slew of downgrades this morning shows that anything to do with trucks, or trucking, is now a whipping boy in this Brexit-influenced market environment. One of our favorites, WABCO Holdings (WBC), has been downgraded a few times since Thursday. Other names, like Meritor (MTOR) and Navistar (NAV), have also been shed by brokerage firms, such as Goldman Sachs and Piper Jaffray. These three stocks are already down around 20% for the week.
The truth is, though, is that even before Brexit, we had a preview that anything truck was on a very slippery slope. Domestically, new truck builds have been down for the better part of two years, now. And volumes, as indicated by Werner Enterprises (WERN) last week, are weak into the summer.
There is too much capacity in the U.S., right now. Customers like Walmart (WMT) are becoming increasingly efficient, and the marginal retailer is retrenching in a big way. This became especially clear after the first-half debacle in our consumer discretionary names uncovered sizeable inventory issues and no product differentiation.
Brexit threw a wrench into European truck sentiment, which had been humming along at a pace consistent with the modernization of the fleet that we have been seeing in the U.S. since 2010. Firms, like WABCO and Meritor, were set to continue achieving expectations, given this strength in Europe. Now, we have to wait and see. Only time will tell if Europe is reaching overcapacity in trucking, as is occurring domestically in the U.S. at the moment, and squeezing freight prices down along with it.
Capex will likely continue retrenching here. Expectations for a strong back-to-school and holiday season don't seem to be realistic, at the moment, which will likely keep a lid on pricing, due to freight line overcapacity. This could potentially begin in Europe, as well.
What I do know is this, I really like buying WABCO Holdings (WBC) when it is weak. I'll wait for this negative sentiment to wash out a bit longer, for numbers to reset on the European-based portions of its business, and then proceed. WBC shares at $80 and below would be the dream level for long-term investors looking for a compounder at an amazing price. This stock is on the shopping list.
