How Building Firetrucks and Concrete Mixers Can Lead to Steady Gains

Some of the best investments come from providing the things we absolutely depend on...

Because customers need these products, there's practically a guarantee they'll be back for more.

That provides steady, reliable sales growth for these companies – which in turn leads to steady, long-term share-price gains.

These companies can offer safety equipment, like MSA Safety (MSA) and Motorola Solutions (MSI). Or they can be defense contractors like Lockheed Martin (LMT) and Huntington Ingalls (HII). After all, we'll always need safety equipment, and the military isn't going to stop buying the things it needs.

Today, we're looking at a company that supplies mission-critical vehicles for both government agencies and businesses...

Oshkosh (NYSE: OSK) is an $8 billion builder of specialty trucks and access equipment.

It built trucks with four-wheel-drive capability in the early 20th century, before becoming involved with the military during World War II. It got its start by supplying snow-removal trucks to the Air Force. The Model W700 trucks Oshkosh built in 1939 were early predecessors to the WT-2206 snowplows it made during the Cold War.

The company also built other vehicles for the World War II efforts, including firefighting, construction, and transportation trucks.

Oshkosh vehicles played such an important role in helping the Allies win World War II that the company received the Excellence in Wartime award. Only 5% of the manufacturing plants that made products for the war received the coveted "E" award.

Following Oshkosh's involvement in World War II, it received another big government contract in 1981.

This time, it developed new Heavy Expanded Mobility Tactical Trucks, or HEMTTs. These eight-wheel drive beasts could better navigate rigid terrain than past military trucks. They could even drive up a 60-degree incline. These trucks proved perfect for the sandy, rocky terrain the military encountered during the Gulf War.

More recently, in August 2015, Oshkosh was awarded a contract to build the military's replacement for the iconic Humvee, known as the Joint Light Tactical Vehicle ("JLTV").

But it doesn't just do work for the military...

Along with being the No. 1 provider of military tactical vehicles in the U.S., Oshkosh is also the No. 1 provider of fire apparatus.

Most fire stations in the U.S. replace their trucks every 10 to 15 years. And in many large cities, where trucks are used more heavily, they may replace their trucks even sooner.

Simply put, if the firetruck fails, the firefighter fails. Local governments have to spend the money for good trucks. And a new firetruck can often cost around $1 million.

And earlier this year, Oshkosh won a $6 billion contract to provide vehicles to the United States Post Office. Under the contract, Oshkosh will deliver up to 165,000 vehicles to the USPS over the next 10 years.

This once again solidifies Oshkosh's leading market position as a supplier of necessary vehicles.

And, despite the pandemic, Oshkosh has continued growing its backlog (sales agreed to but not yet delivered).

For the most recent quarter, its Defense segment had a total backlog of $3.5 billion, which was up about 2% from the prior year. And its Fire & Emergency segment had a total backlog of $1.27 billion. Margins for both businesses were up as well.

Altogether, Oshkosh's backlog sits at $6.7 billion, up 13% from the same quarter in 2020. The big jump in its backlog is attributed to Oshkosh's Access Equipment business, which makes things like aerial work platforms and telehandlers, mostly used in construction.

This shouldn't be all that surprising. Construction was hit hard throughout the pandemic. But now, as things are reopening, these projects are starting up again. So construction companies are preparing to restart these projects. And they're buying from Oshkosh to do so.

Oshkosh has a strong balance sheet, too. Its ratio of net debt to earnings before interest, taxes, depreciation, and amortization ("EBITDA") is only 0.9. That's far from a highly levered company. The median company in the S&P 500 Index (among those with a positive EBITDA) has a ratio around 2.7.

Supplying vehicles to soldiers, firefighters, and mail carriers is a great business. These are mission-critical vehicles that always need to be updated. And as that happens, government agencies will continue turning to Oshkosh. That should be a long-term tailwind for the shares.

Sometimes investing is simple.