This article originally appeared on RealMoney.com on Sept. 3, 2014 at 11:00 a.m. To read more content like this AND see inside Jim Cramer's multi-million dollar portfolio for FREE... Click Here NOW.
This morning, truck manufacturer Navistar (NAV) posted a smaller-than-expected loss, though revenue was on the light side. The interesting part of the report was the company's forward guidance: This year's sales are now expected to come in at the upper end of expectations.
The company sees a rebound in demand, particularly for its heavy-duty trucks, so that's good news going forward. Navistar's stock has nearly doubled in the past two years, but it remains well below its highs in 2011, when it had traded in the $70 range. Based on today's report, is this a good stock to own now?
A look at Navistar's technicals show several positive developments. Since early 2012, the stock has been trapped in a symmetrical triangle, and today's news has the shares pushing against the upper boundary of that pattern. Symmetrical triangles are non-directional by nature; generally, traders wait for the stock to break out of the pattern before they'll take a position. That breakout could happen today, though the stock needs to close above $40 in order for it to pull in additional buyers.
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Navistar's weekly moving average convergence-divergence (MACD) indicator recently flashed a buy signal (shaded yellow). The only remaining obstacle is a patch of resistance from late 2013 (shaded blue). If the breakout holds, Navistar could be headed to the mid-to-high $40s.
The stock has a big buyer in Carl Icahn, who purchased more than 1 million shares this year. Icahn raised his stake in the company to 14.3 million shares, currently worth $557 million. But, while Mr. Icahn has helped support Navistar's stock price, he's no fan of the company's management. He famously excoriated Navistar in a scathing letter to the board of directors nearly two years ago, calling the company a "poster child for abysmal business decisions" and declaring that management was "asleep at the switch."
Perhaps Mr. Icahn can take solace in today's report, which shows a company that is increasing production as it reduces its expenses, which fell by 8%. Navistar's North American truck segment lost only $12 million during the quarter, compared with a $143 million loss the previous year. The North American truck-parts segment improved dramatically, posting a profit of $127 million during the quarter.
Navistar shares are not cheap, as they currently trade at 23x next year's estimates. However, the stock's technicals and fundamentals are both improving. This turnaround play is a speculative buy if it can manage to close above $40.
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