Truck maker PACCAR (PCAR -0.59%) has had a good ride in 2013, with shares gaining 34% so far. Greater housing starts, freight tonnage, and replacement demand boosted the trucking industry this year. PACCAR is a key beneficiary of healthy trucking trends, thanks to its solid foothold in the U.S. truck market. Well-established brands like Kenworth, Peterbilt, and DAF, and long-standing relationships with leading diesel-engine maker Cummins (CMI -0.16%) and the innovator in natural-gas-engine technology, Westport Innovations (WPRT 0.80%), are among PACCAR's major strengths.

Image source: PACCAR

PACCAR's performance may look lackluster in front of rival Navistar International's (NAV) astounding 73% returns this year, but the rally in Navistar shares had almost nothing to do with the industry conditions. In fact, Navistar's failed engine technology and soaring warranty claims turned into an opportunity for PACCAR this year. But with Navistar getting back into the game, will PACCAR shares continue to maintain their momentum in 2014? Let's find out.

An eventful and successful year
PACCAR's performance improved dramatically after a dull first half. After slipping 11% and 16% over the first six months, PACCAR's sales and net income jumped 13% and 32%, respectively, during the third quarter. Record freight tonnage and improved fleet utilization boosted its sales. According to the American Trucking Association, truck tonnage was up 5.8% through November.

Navistar's problems were an added boon. Even as Navistar lost 5% market share in the critical heavy-duty Class 8 truck segment during the first half, PACCAR sold nearly double the number of trucks as Navistar during the period. The markets may be wary that Navistar's visible turnaround, especially after it adopted Cummins engines for its trucks and won approval for its 13-liter engine, may make things tougher for PACCAR going forward. But Navistar's woes are far from over yet, and PACCAR enjoys several competitive advantages that should steer its growth. Innovative and timely product launches is a fine example.

Among the several products that PACCAR launched this year, the important ones include:

  • Kenworth T880 vocational truck, equipped with the PACCAR MX-13 engine
  • PACCAR MX-11 Euro 6 compliant engines. Starting with DAF trucks this year, the engines are expected to make way into Kenworth and Peterbilt trucks by 2015
  • New LF and CF Euro 6 DAF truck models, powered by the MX-11 engines

The New Peterbilt Model 567, Kenworth T880, and DAF CF. Image Source: Company website

The Euro 6 compliant engines and trucks, in particular, position PACCAR well for future growth. The company reported a solid 70% year-over-year jump in third-quarter DAF orders as customers rushed to buy Euro 6 trucks before the standards get implemented in January 2014. With Europe accounting for a quarter of PACCAR's revenue, investors can expect strong sales from the region next year.

Encouraged by DAF's success in Europe, PACCAR commenced production at its first DAF factory in Brazil this October. While it may take time to establish in the market, the company is targeting 20% market share in the long run.

Earlier this year, PACCAR also released the test run results for the "SuperTruck" that it's building with Cummins. The Class 8 Peterbilt 587, powered by Cummins ISX15 engine, yielded a whopping 54% higher fuel economy and 61% better freight efficiency. With the need for fuel efficiency gaining significant ground in recent times, the SuperTruck is a much-awaited product.

Best of the lot
In fact, PACCAR has the best of the diesel as well as natural-gas engines in its trucks. PACCAR is always at the forefront to try the latest products from Cummins-Westport. It was among the first truck companies to launch two truck models, equipped with the ISX12G engines, in 2012. The engine was successfully launched earlier this year, and has been highly demanded ever since. CWI, or the Cummins-Westport joint venture, even reported 38% higher second-quarter engine shipments, backed by strong demand for the ISX12G engines. After all, Westport Innovations has called it "the strongest product that CWI has ever launched."

If natural gas made up only 1% of the truck market in 2012, Westport Innovations expect the fuel's share in trucks to go up to 4%-5% next year. As a key Cummins-Westport customer, and having 40% of the natural-gas truck market already under its belt, PACCAR is well poised to tap the huge opportunity.

The Foolish bottom line
With the U.S. Class 8 truck fleet and freight tonnage recently hitting multi-year highs, the truck industry may have stepped on the gas. Robust replacement demand, higher construction activity, and increased acceptance of natural gas as an alternative fuel, further strengthen PACCAR's case.

What's more, this Fortune 500 company believes in rewarding its shareholders, having announced a specialdividend of $0.90 per share earlier this month, which is higher than its annual dividend. A solid free cash flow of $1.7 billion for the trailing twelve months, and $2.8 billion in cash and marketable securities means that investors can expect the rewards to continue next year. PACCAR is certainly a stock to watch for 2014.