Caterpillar Inc. (CAT), Joy Global Inc. (JOY), Terex Corporation (TEX): A Mining Name to Buy Despite Weak Mining Environment

Given that the stock is down 25% since the start of the year, it seems most of the bad news has already been priced into the stock. The stock is trading at a forward multiple of only 9 times, which is way less than the industry’s average of 14 times. Apart from the restructuring program, the fact that the company’s increasing aftermarket revenue also serves as a positive.

Terex has also suffered from weak mining environment

Terex Corporation (NYSE:TEX)’s material processing segment contains a small proportion of exposure to mining activity, and hence has suffered as a result of slow growth in this sector. However, apart from that, the company has also suffered from a weak Yen, which has largely helped its Japanese competitors like Hitachi and Komatsu. The company’s cranes business has been a sign of hope, but the company has not been rewarded in proportion to its efforts.

The positives were that Terex Corporation (NYSE:TEX) Chairman and CEO, Ron DeFeo, discussed the company’s businesses and how they were progressing in relation to management’s long-term goals of $10 billion in revenue with 10.0% operating margins by 2015. The Aerial Work Platform business is running ahead of plan ($2.9 billion in revenue with 15.0% margins by 2015), particularly in Europe. The company has gained market share in Latin America, and its China business has turned the corner and is becoming profitable, though it is still relatively small. The CEO believes that replacement demand will support sales for the next two years, even though rental companies are likely to maintain older fleets than in previous cycles.

Final word

Declining mining capex as a result of weak demand for commodities has led to a bleak future for machinery companies. Some, like Caterpillar Inc. (NYSE:CAT), have been more affected, while others, like Terex Corporation (NYSE:TEX), have been less affected by this trend depending upon their level of exposures. However, on an individual basis, Joy Global Inc. (NYSE:JOY) looks to be the best investment among the three given its cheap valuations and strong aftermarket sales.

The article A Mining Name to Buy Despite Weak Mining Environment originally appeared on and is written by Zain Abbas.

Zain Abbas has no position in any stocks mentioned. The Motley Fool owns shares of Terex. Zain is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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