Industrial stocks have been beaten down over the last few weeks, but the tide is starting to turn. China released positive economic data that will help curb the uncertainty of this market, and Alcoa Inc (NYSE:AA) gave us its projected growth by sector. It is time to take a look at the companies that will benefit the most from China’s strengthening economy.
Chinese imports
China posted a trade deficit for March, surprising analysts. Imports rose 14% year over year, blowing past expectations for an increase of 5%, while exports rose just 10%. The rise in imports was caused by increased demand for commodities, most notably copper and oil. Copper and oil are crucial for the construction, power generation, and heavy machinery manufacturing industries to name a few. With all of this said, it seems China is getting ready to make some moves.
Alcoa’s insight
Here is Alcoa’s breakdown of China’s projected usage for 2013 vs. 2012:
- Automotive: 7%-10% growth
- Heavy truck and trailer: 12%-16% growth
- Beverage cans: 8%-12% growth
- Commercial building and construction: 8%-10% growth
CAT’s sigh of relief
It was getting ugly for Caterpillar Inc. (NYSE:CAT) when the global economic outlook was in question. We watched its stock fall over 15% from $99 on Feb. 1 to $84 on April 3. However, the positive outlook in China has caused it to rebound above $86 and it has plenty of room left to run.
China made up 27.3% of Caterpillar’s fourth-quarter revenue and contains over 30% of its global dealers. This has become its top strength after the economic release and it is the number one beneficiary to the increased mining and construction that will take place. Caterpillar had a record year in 2012 and I think 2013 has the potential to be even more impressive.
2012 financials vs. 2011:
- Net sales increased 10% to a record $65.9 billion
- Profit per share reached a record $8.84, a 15% increase
- 19th consecutive year of dividend increases
Jumping for Joy
A direct play on the increase in mining would be Joy Global (NYSE:JOY). Joy is a worldwide provider of mining equipment and services, and China is one of its largest markets. The top commodities mined by its equipment are coal, iron ore, and copper, all of which will be in high demand in China.
Joy Global performed very well in 2012 due to growth in North and South America. It should continue its growth throughout 2013 with China on board.
Take a look at 2012 compared to 2011:
- Net sales rose 28.5% to $5.66 billion
- Operating income rose 27.4% to $1.2 billion
- Underground mining equipment sales rose 20.6%
- Surface mining equipment rose 39.7%
As miners began jumping for joy after the Chinese economic report, Joy itself has continued to lag. The stock saw an initial pop of 2% on April 9, but sold off 2% the very next day and then continued down for the week. I do not think the market is reacting correctly and this is an opportunity to buy on weakness. China was the catalyst Joy Global (NYSE:JOY) needed and has the potential to drive revenues to all-time highs.
The Foolish bottom line
There has never been a better time to own the industrials than right now. Caterpillar Inc. (NYSE:CAT) and Joy Global have been beaten down on the questionable global economy, but with China and Alcoa Inc (NYSE:AA) providing the insight we needed, it is time to pile back in. The rally is only beginning, so I would not wait much longer. Have a look to see if your portfolio could use an industrial, and if it does, take your pick.
Joseph Solitro owns shares of Caterpillar Inc. (NYSE:CAT). The Motley Fool has no position in any of the stocks mentioned.
