Terex Has More Room to Dig

Includes: BUCY, TEX
by: Glenn Rogers

We originally recommended Terex Corp. (NYSE: TEX) on May 16/08 (IWB #2819) at US$71.78. The stock closed Friday at US$22.89. (All figures in U.S. dollars.)

Terex has almost doubled since our last update although it is still way below its original recommended price. The news is that the company recently agreed to sell its mining business to Bucyrus (NDQ: BUCY) for $1.3 billion.

"This transaction accelerates the transformation of Terex Corporation as we move from a Construction and Mining Equipment Company to a Machinery and Industrial Products business," said CEO Ronald M. DeFeo. "Going forward, we will focus on products and services where we can maintain and build superior customer propositions with high returns on capital for our owners. The current environment plus this transaction provide an excellent opportunity to create value. We plan to execute the changes needed to make this happen."

The products to be divested by Terex in the transaction include hydraulic mining excavators, electric drive mining trucks, track and rotary blast hole drills, and the highwall miner, as well as the related parts and aftermarket service businesses, including the company-owned distribution locations.

I also own BUCY which along with the other heavy equipment stocks has been on fire the last few months. I think this is a good deal for both companies so I intend to continue to hold both stocks even though they have run up lately and are starting to look a little pricey here. But if you believe the global recovery will push demand for commodities and lead to more money being spent on infrastructure projects, it is likely these stocks will continue to go up.

Action now: Hold.

Disclosure: Author holds long position in TEX and BUCY