Joy Global Inc. (JOY) is a leading manufacturer and servicer of high-productivity mining equipment for the extraction of coal and other minerals and ores. China today has a cheap stock market, vibrant economy, a broadening industrial base and consistent political background. Joy Global presently has a market cap of $6.69 billion and P/E ratio of 8.6, below the S&P 500 P/E ratio of 17.7. Expect Joy to be a winner as China's economy rebounds.
First-Quarter Fiscal 2013 Results
Net sales in the first quarter were up 1 percent to $1.1 billion compared with the same period last year. Operating income was $221 million in the first quarter of 2013, compared with operating income of $214 million in the first quarter of 2012 and was 19 percent of sales in both years. Income from continuing operations was $142 million or $1.33 per fully diluted share for both periods. First-quarter bookings decreased 29 percent to $1.0 billion in fiscal 2013 compared with the first quarter of last year.
"Our results for the first quarter demonstrate continued strong execution," said Mike Sutherlin, President and Chief Executive Officer. "We are also starting to see benefits from strategic actions to lower our cost base. Both are important as we continue to adjust to headwinds in the mining sector. Although there are growing examples that commodity fundamentals are beginning to turn positive, we expect some delay in translating that into increased mine expansion projects due to a much more cautionary stance on capital deployment by our customers. Despite the current challenges, we see this as an opportunity to streamline and improve the efficiency of our business, and that continues to be our focus. We have demonstrated our ability to respond to growth, and our focus on lowering our cost base will not cause us to miss upside opportunity."
Investors should understand that returns on a slower trend growth can provide ease in long-term investing as the market is in place for rebound. Expectations are that China will grow at a 10% rate this FY 2013. The Shanghai Composite is up nearly 20% since last fourth quarter. Goldman Sachs is bullish this year that China's outlook will be high. Expectations of domestic investors are still low. Local investors will play a critical role in determining market direction accounting for 80 percent turnover at China's two stock exchanges in Shanghai and Shenzhen. Overall, the Asian economy has been improving quite well.
2013 is optimistic in the fact that it could be the year Chinese stocks rebound. Economic fundamentals have been improving. A lot of positive outlook is in place for a rebound, including Chinese new leadership and talk of reform. But it will take time before we see any significant developments. We have seen the key index recover indicating the worst could be over for the Chinese economy. The Shanghai index could climb to the 2,400-2,500 range in the first half of 2013, implying an upside of about 8.5 percent to 13 percent. In these cases, slower growth can be more profitable.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.