Billionaire investor Carl Icahn may be counting on a combination of America’s two cheapest commercial truckmakers as their shareholders look to recoup $2.8 billion in losses this year.

Icahn last week revealed a 9.8 percent stake in Navistar International Corp., the 109-year-old manufacturer of trucks and buses, making him the second-largest investor. Since reporting in June he owned 9.5 percent of Oshkosh Corp., shares of the U.S. military’s biggest armored-trucks supplier have fallen 36 percent. Navistar and Oshkosh, which lost a combined 38 percent in market value this year, are both trading at the steepest discounts to sales among U.S. commercial truckmakers greater than $1 billion, according to data compiled by Bloomberg.

Even as truck demand recovers from the longest recession since the Great Depression, sales at Navistar of Warrenville, Illinois, and Oshkosh have been hampered by tighter U.S. defense spending on military vehicles. Higher production costs at Navistar and fewer purchases of Oshkosh’s trash trucks and fire engines by cash-strapped local governments have also undercut profits. The two could boost earnings by combining manufacturing operations, buying materials in greater bulk and using Navistar engines in Oshkosh vehicles, said Sterne Agee & Leach Inc.

Icahn “may want to put the two together,” Patrick Nolan, a Stuart, Florida-based analyst for Penn Capital Management Co., said in a telephone interview. “He’s probably thinking the trucking cycle is here to stay and if there’s less downturn than people think on the military spending side, these things are pretty cheap at current levels.”

Penn Capital oversees $6.5 billion including about 300,000 shares of Navistar.

MaxxForce Engines

Icahn, 75, the chairman of Icahn Enterprises LP, didn’t return a telephone message seeking comment.

Navistar doesn’t comment on individual shareholders and is “always open to dialogue with its investors that can enhance shareholder value,” Karen Denning, a spokeswoman for the company, said in an e-mail. John Daggett, a spokesman for Oshkosh, which is based in the Wisconsin town of the same name, declined to comment on a potential combination.

Navistar, which sells International brand trucks, MaxxForce engines and vehicles for military use, has been selling more trucks in mass, and the discounts are crimping profitability. The price of a single truck sold at a dealership is as much as 10 percent higher than a truck bought as part of a fleet, Dan Ustian, Navistar’s chief executive officer, said on an earnings call last month.

School Buses

Shares of Navistar, which has the top market share in the U.S. and Canada for school buses and medium trucks, had fallen 31 percent this year to $40.10 as of yesterday, giving it a market capitalization of $2.91 billion. The company’s value was $4.16 billion at the end of last year.

Oshkosh manufactures vehicles for the U.S. Department of Defense that haul tankers, missile systems, fuel and troops and made up 72 percent of the company’s $9.84 billion in revenue last year. The government only contributed about 15 percent of Navistar’s revenue, down from 27 percent in 2008.

The Defense Department faces cuts of about $450 billion from its 10-year spending plans. If Congress and President Barack Obama can’t agree on at least $1.5 trillion in savings across the entire federal budget for the next decade, an added $500 billion must be taken from the military budget.

Oshkosh, which also sells fire trucks and ambulances to cities and counties, is projected to post a 67 percent decline in net income this year, according to analysts’ estimates compiled by Bloomberg.

Discount to Sales

Shares of Oshkosh had fallen 48 percent this year through yesterday, wiping out $1.52 billion for shareholders and giving it a current market capitalization of $1.68 billion.

Navistar and Oshkosh are both valued at 0.22 times their sales in the last 12 months, according to data compiled by Bloomberg. The 78 percent discount makes them cheaper than all 13 other U.S. commercial vehicle and truck makers greater than $1 billion, the data show. The group has an average price-sales ratio of 0.87 times. Oshkosh is also valued at the cheapest relative to earnings in the industry, the data show.

While Oshkosh depended on the U.S. for 90 percent of its fiscal 2010 sales, Navistar generated 28 percent of its $12.1 billion in revenue outside America, according to data compiled by Bloomberg. Navistar got 7.9 percent of its sales from Brazil, where the economy expanded 7.6 percent in 2010, more than twice as fast as the U.S., data compiled by Bloomberg show.

‘Very Cheap Asset’

“Navistar is clearly trading at attractive multiples, on top of which there are some major growth opportunities -- a cyclical recovery and a growing footprint in emerging markets,” Brian Sponheimer, an analyst at Gabelli & Co. in Rye, New York, said in a phone interview. “Oshkosh is, at worst, a very cheap asset right now.”

Gabelli is a unit of Gamco Investors Inc., which oversees $35 billion including about 3.1 million shares of Navistar.

Icahn disclosed Oct. 13 in a regulatory filing that he had bought 7.11 million Navistar shares, including those underlying call options, since August. He made the purchases for about $118.1 million because the stock is “undervalued at current levels,” according to the filing.

Icahn said he’s had conversations with management and discussed the possibility of adding board members. This week Navistar extended the deadline for board member nominations by almost a month to Nov. 15.

Since rising 7.3 percent the day after the investment was disclosed, Navistar shares have retreated 3.4 percent this week.

Replacing Old Trucks

“We don’t buy these things for week-to-week or month-to- month returns,” Icahn said about the Navistar investment in an Oct. 17 interview on CNBC. He said he sees “good things” for Navistar in the next few years as fleets of older trucks need to be replaced.

The average age in the U.S. of Class 8 trucks -- the heavy vehicles that are the backbone of interstate hauling -- is 6.7 years, the oldest on record, Gabelli’s Sponheimer said. Class 8 truck sales in North America will rise 4.4 percent to 261,000 in 2012, according to FTR Associates, a trucking-industry forecaster based in Nashville, Indiana.

In June Icahn said he held 8.67 million shares, including call options, of Oshkosh that were purchased for about $129.5 million “in the belief that the shares were undervalued.” Since then, when Icahn also said he would seek talks with management, Oshkosh has lost 36 percent, more than twice the 14 percent decline of the Standard & Poor’s Midcap 400 Index.

Navistar-Oshkosh Combination

“Both stakes are relatively recent, and there are probably some pretty meaningful synergies between the two companies,” Kirk Ludtke, an analyst at Stamford, Connecticut-based CRT Capital Group LLC, said in a telephone interview.

Combining Navistar and Oshkosh would cut costs by consolidating manufacturing operations and would better insulate against swings in military budgets, Ben-Ari Elias, a New York- based analyst at Sterne Agee, said in a phone interview.

“You put the two together, you have a company that’s reduced inefficiencies even further, has more scale when it comes to buying raw materials and you don’t need to double manufacture cement trucks or garbage trucks or even fire trucks,” Elias said. “Municipal governments are so broke that no one can spend on new fire trucks.”

More than half of U.S. municipal officials say finances were worse in fiscal 2011 than in 2010, according to the National League of Cities 26th annual City Fiscal Conditions report. Inflation-adjusted revenue is headed for a fifth- straight annual drop, the survey showed last month.

Icahn’s Agenda

Icahn should merge the two and then spin off the combined military business, which has been a drag on both stocks, said Penn Capital’s Nolan. The new entity, which would be focused on trucks and engines, may then attract interest from a European manufacturer looking for sales in North America, he said.

Still, splitting off Oshkosh’s and Navistar’s combined military units would be difficult now because concerns about lower military spending would reduce the valuation, Nolan said.

Navistar may even be an acquisition candidate on its own because it’s cheap right now, Andrew Baumbusch, a fund manager for Cambiar Investors LLC, said in a phone interview from Denver. The firm oversees about $8 billion, including about 300,000 shares of Navistar.

“I don’t know what Icahn’s agenda is,” said Cambiar’s Baumbusch. “But I’m sure that he wants these stocks he bought to be worth more than they are when he sells them.”