Apple Inc. (AAPL), Coach, Inc. (COH): Tips (and Picks) For a Killer “Value Swing”

Joy Global Inc. (NYSE:JOY)

Joy is a value play for those who like their investments spicy. The company makes mining products for many industries including coal–and boy, coal has taken a bath lately. Record low prices of natural gas have hammered the coal industry as utilities have gone “cheap.”

Despite being at the intersection of two slumping sectors (coal and mining) Joy actually had record earnings of $7.29 in 2012, as revenues surged 29%. Half of Joy’s business is in the aftermarket services of parts, which provides multiple “up-cycles” to win. Customers may hold off on buying new equipment, but sooner or later the old machines need repairs.

If you buy Joy, you should know that the market will attribute every price dip to “coal woes,” so you need to really believe—otherwise you’ll sell into panic. Here’s are a few points to reference when the panic sets in.

1). Despite the downturn in coal last year Joy earned $7.29/share–it lost $0.20 per share in 2002. Things weren’t bad in ’02; Joy’s business is just cyclical. Always remember that–it’s cyclical.

2). The coal industry is cyclical itself and is poised for a rebound. Exports are expected to emerging markets are expected to surge by 2020 and natural gas prices are bouncing slightly (yep, Nat gas is not renewable after all).

3). Joy has its financial house in order. The company earns a strong 31% return on equity–far above the industry average. This means it can weather cyclical storms.

But perhaps the best news is that despite the record growth last year, sales aren’t projected to dive this year. The next three years earnings estimates for Joy are at between $6-$7 a share. The stock hasn’t missed earnings estimates in many years. Once coals sentiment stabilizes, the stock should trade at a multiple near 14 (below the market and Joy’s historic average). And if analysts happen to turn a smidge bullish toward coal–watch out!

Working on your game

Understanding the cyclical nature of negativity can help you buy great stocks at cheap prices—but it’s just the start. This is a great tip you can use but, like a perfect golf swing, successful value investing takes a lot of work. Stay tuned, more tips (and picks) for your “value swing” are coming soon!

The article Tips (and Picks) For a Killer “Value Swing” originally appeared on Fool.com and is written by Adem Tahiri.

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