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ERROR: type should be string, got "https://www.barrons.com/articles/navistar-stock-makes-a-cyclical-comeback-51545151125\nNavistar Stock Makes a Cyclical Comeback\nAl Root\nDec. 18, 2018 11:38 am ET\nPhotograph by Scott Olson/Getty Images\nTruck maker Navistar International (ticker: NAV) is up after reporting fiscal-fourth-quarter earnings. It’s up a lot.\nNavistar shares have jumped 15% in early Tuesday trading. That still leaves shares down 36% year to date. After all, the 52-week intraday low in the stock was reached Monday.\nNavistar stock is a good illustration of the problems, and the rewards, cyclical shares offer.\nHeavy-truck markets are highly cyclical. For example, Volvo’s Mack truck deliveries fell 75% peak-to-trough during the financial crisis.\nAnd Mack’s truck orders peaked about a year ago. That’s a signal to investors that production rates, and eventually earnings will begin to fall.\nThat cyclical decline has arrived for Navistar, but it might not be that bad for the company. CEO Troy Clarke said on the quarterly conference call, “from an industry perspective, 2019 is shaping up as a [sic] very good year.” Navistar’s guidance implies that operating earnings will only fall about 4% next year. But so much bad news has been built into the stock price that the updated outlook is enough to send Navistar shares higher.\nNavistar stock trades for about 9 times earnings. That’s down from about 15 times at the start of 2018.\nTypically, investing in cyclical stocks means selling as growth decelerates and buying just before the outlook bottoms. But the severity and speed of recent declines may change the rules of the game. Already, 60% of the industrial components of the S&P 500 are in bear-market territory and cyclical price-to-earnings ratios have fallen by about 30% this year.\nNavistar also illustrates the impact of debt on the enterprise. The market values the total Navistar enterprise—debt and equity—at $6.9 billion; $4.1 billion of that, or 59%, is debt. Navistar pension plans are also underfunded by over $1 billion. Navistar also reported that funded status had improved by $400 million today because of cash contributions and the impact of higher interest rates.\nTuesday’s 15% move in the stock price equates to a 5% change in the value of the enterprise. Investors don’t usually like it when cyclical stocks carry that much debt.\nNavistar’s woes stretch back many years after decisions about engine technology resulted in higher warranty costs and lost market share. Decisions that have made the stock more volatile than peers. This year marks another milestone in management’s turnaround efforts. Clarke added on the call, “market share in core markets increased for the second consecutive year. Class 8 [truck] share for the year was 13.5% compared with 11.8% in 2017.”\nWith Navistar stock or other cyclicals there is the risk of a value-trap scenario. That’s when cyclical shares can’t hold gains because an economic downturn is looming in investors’ minds. Still, Navistar shows that “good enough” could be just enough for cyclical stocks to rise.\nWrite to Al Root at allen.root@dowjones.com\nTruck maker Navistar International (ticker: NAV) is up after reporting fiscal-fourth-quarter earnings."