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Should Activists Give Up On Navistar International Corp (NAV) After 12th Straight Quarterly Loss?

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Navistar International Corp (NYSE:NAV) is down by over 7% in trading today after the firm reported its 12th consecutive quarterly loss, for the fiscal third quarter of 2015. The firm reported a net loss of $28 million, or $0.34 per diluted share, wider than the net loss of $2 million, or $0.02 per diluted share, in the same quarter last year. Revenue was reported to be $2.54 billion, down from $2.84 billion year-over-year. The results also fell well short of analysts’ estimates, as Wall Street was expecting the firm to earn $0.08 per share on revenues of $2.75 billion.

Navistar International Corp (NYSE:NAV)’s fiscal third quarter was dragged down by burgeoning losses in its truck and global operations segments, despite gains in the parts and financial services segments. The truck segment tallied a loss of $36 million, compared to $3 million a year ago, while the global operations segment’s loss grew by $5 million to $26 million. Nonetheless, the parts segment reported $151 million in sales for the fiscal third quarter, up from $137 million in 2014, while the financial services segment had $26 million in sales, up from $24 million last year.

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According to the firm, while there was an increase in truck, bus and parts sales in North America, sales were lower in export truck and parts sales, in addition to the negative impact it incurred from its exit from the Blue Diamond Truck joint venture it had with Ford Motor Company (NYSE:F). Nonetheless, Navistar President and Chief Executive Officer Troy A. Clarke said that the firm is actively seeking to improve revenue and cut costs. According to the executive, his team likes their company’s chances coming up on the 2016 buying season, especially for larger fleets. For the fiscal third quarter, the firm had $775 million in manufacturing cash, cash equivalents, and marketable securities. It also refinanced its existing term loan, improving its liquidity by $313 million and extending the maturity of the loan to 2020.

These measures being taken by Navistar International Corp (NYSE:NAV) as well as future plans to improve revenues may have been anticipated by hedge funds as they were generally bullish on the firm at the end of June, as we will discuss later on. It should also be noted that activists like Carl Icahn and Mark Rachesky, have continually increased their stakes in the firm in the hopes of influencing a turnaround, yet have been unable to do so as of yet. Icahn started building his stake in Navistar in 2011 while Rachesky just recently bought more shares of the struggling firm.

Let’s take a step back and analyze how tracking hedge funds can help an everyday investor. Through our research, we discovered that a portfolio of the 15 most popular small-cap picks of hedge funds beat the S&P500 Total Return Index by nearly a percentage point per month on average between 1999 and 2012. On the other hand, the most popular large-cap picks of hedge funds underperformed the same index by seven basis points per month during the same period. This is likely a surprise to many investors, who think of small-caps as risky, unpredictable stocks and put more faith in large-cap stocks. In forward tests since August 2012, these top small-cap stocks beat the market by an impressive 60.4 percentage points, returning 118% (read the details here). Hence, a retail investor needs to isolate himself from the herd and take advantage of the best growth opportunities in the market by concentrating on small-cap stocks.

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