With automakers such as Tesla, General Motors and Toyota filling the headlines, it’s easy to ignore other large and potentially profitable players in the industry. Before deciding which of the many companies exposed to the auto sector to add to your portfolio, don’t forget to see whether the following firms could be right for you. While not all these companies are automakers, they do play key roles in the industry, which is expected to boom along with the world’s emerging markets.
Oshkosh Corporation (NYSE:OSK) needs further diversification
Specialty vehicle manufacturer Oshkosh Corporation (NYSE:OSK) has managed to secure major deals with the United States Army. It will need to continue booking those contracts if it wants to keep up profits, however. The company’s current deal with the military, which is due to last for at least another year, is a major source of the company’s revenue.
With a client as major as the Pentagon, however, the company needs to tread very carefully when dealing internationally. The wrong deal could likely tarnish its relationship with the U.S. Department of Defense. After all, a firm that is supplying a possible enemy with vehicles won’t be favored in the next request for proposals. The company recently won a bid to supply 750 vehicles to the United Arab Emirates, so we will see whether that affects its domestic business.
About 60% of Oshkosh Corporation (NYSE:OSK)’s annual sales are from defense, and the company will need to diversify further before I buy its shares. Despite the firm entering the concrete mixer, fire truck, and refuse vehicle businesses, relying on one client for 60% of revenue is potentially disastrous.
PACCAR Inc (NASDAQ:PCAR) will profit from focus on assembly
PACCAR Inc (NASDAQ:PCAR) manufactures, light-, medium- and heavy-duty trucks. It is one of the better diesel truck manufacturers to own, and also beats out many of its non-diesel rivals. This is because the company has cut out its manufacturing segment to focus solely on assembly. That will help improve its profit margins going forward because of fewer variable costs involved.
The company will also likely attract new customers because of its ability to innovate. For example, the firm’s new engine doesn’t use as much fuel when idling, which it says can save up to 8% of fuel use. Furthermore, the firm is adding hybrid vehicles that can save up to 30% of fuel.