Heavy equipment has experienced a rough patch over the past few years. With construction down in the developing world due to the recession, the developed world’s infrastructure being mature and not needing much work and mineral resources becoming increasingly difficult to tap, the demand for heavy machinery has waned somewhat. However, long-term contracts tend to make demand among major clients more stable than the fickleness of the ordinary consumer. Let’s see how some of this segment’s players are faring.
It’s still running
Deere & Company (NYSE:DE) has factories all over the world, including a significant number in the US. Having operations worldwide allows the company to work well with currency fluctuations and turn them into advantages instead of the hardship many people assume they are. Working as one of the largest producers of agricultural machinery there is, and having an easily-identified brand, Deere & Company (NYSE:DE) does have a substantial moat. It’s 2.3% dividend yield and 8.5% profit margins aren’t bad either. Overall, Deere & Company (NYSE:DE) is a decent company that’s trading at a reasonable price at around 10 times its earnings.
The only two concerns an investor should have are that the company is trading at 4.1 times its book value and that it is all about fossil-fuel powered engines. As emissions standards change, the company may find that its massive diesel engine operation needs to change in expensive ways. This could be costly. And for a company that manufactures heavy equipment, trading for four times its book value is unusual and costly.
On the whole, I would recommend Deere & Company (NYSE:DE).
Digging for greatness
Joy Global Inc. (NYSE:JOY) is a mining equipment manufacturer, servicer and parts distributor. Since it operates on the three most important aspects of equipment, Joy Global Inc. (NYSE:JOY) has a solid hold on its customer base and reasonable security in its continued business.
The company pulls a 13.3% profit margin, which gives it plenty of money to expand and make alterations as needed, and pays a 1.3% dividend it can easily afford. Joy Global Inc. (NYSE:JOY) is even trading for around 8 times its earnings, which is a great deal. Joy also has solid prospects because it’s in the process of acquiring International Mining, China’s largest long-wall mining shear manufacturer. With coal being a huge part of industrialization and much of Asia industrializing and growing rapidly, there is a lot of market opportunity Joy Global Inc. (NYSE:JOY) can break into.
Of course, there is the issue of coal becoming less popular with each passing year. It’s dirty and puts toxins in the air, and this is both bad and unpopular. In time, more of the world is likely to become more environmentally conscious and begin heavily regulating or outright banning the use of coal. Joy Global Inc. (NYSE:JOY) will have to think quickly when that happens. As a play for the next few years, I’d suggest Joy Global. But there will come a time to sell, and that time may only be a decade or so down the line.