Multi-National Machinery Makers Starting to Rebound

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 |  Includes: CAT, CMI, JOY
by: David White

More and more people are now saying the market has bottomed near term. They are no longer talking about catching a falling knife. Now they are talking about getting in near a bottom, so they can catch more upside movement. With this in mind, what stocks do you think are likely to have been hit the hardest? The cyclicals are usually a good bet. These were knocked down on worries about a very near-term recession/depression. Now that those fears are abating, those same cyclicals stand to rebound considerably.

In my mind the cyclicals that should rebound best are the multi-nationals, especially those that sell heavily to the Asian countries. Forty Five Asian countries are expected to see growth at 7.8%+ in 2011 and 7.7%+ in 2012. Presuming the above forecast plays out close to expectations, companies selling heavily to these countries will do well. As a specific instance, China and India both want to expand their mining activities quickly as their demand for such items as coal, iron ore, etc. grows quickly. This should mean more business for such companies as Caterpillar Inc. (NYSE:CAT), Joy Global Inc. (JOYG), and Cummins Inc. (NYSE:CMI).

Each of these companies has taken a bad beating in the recent market downturn. Each is starting to rebound. Now that fears of catching a falling knife are abating, investors should be able to catch a lot of upside movement in all three of these stocks. The table below give some quick fundamental financial data about each one. It also gives the investor an approximate idea of the possible upside in each stock.

Stock

CAT

JOYG

CMI

Price

$89.81

$80.49

$94.47

1 yr analysts target price

$128.80

$109.33

$134.50

Gain Forecast

43%

36%

42%

PE

14.85

16.10

12.39

FPE

9.71

11.34

8.92

Analysts’ Opinion

2.1

2.3

2.2

Beat For latest Quarter

-13.10%

No result yet

+19.90%

EPS Growth in 2011

63.60%

30.20%

72.10%

EPS Growth in 2012

36.20%

23.90%

19.00%

5 yr. EPS Growth per annum

17.50%

20.40%

12.00%

Market Cap

$58.02B

$8.45B

$18.21B

Enterprise Value

$82.96B

$7.78B

$17.50B

Price/Book

4.33

4.91

3.53

Cash/Share

$14.64

$10.20

$7.65

Beta

1.93

2.11

1.98

Click to enlarge

 

From this data, it looks like CMI may be the best investment of the three at this time. However, all three companies look like good investments. Let’s look at the charts for these companies.

The one-year chart for CAT is below (click charts to enlarge).

Click to enlarge

The one-year chart for JOYG is below.

Click to enlarge

The one-year chart for CMI is below.

Click to enlarge

All three of the above charts look like strong uptrends have been broken recently. The charts of CAT and CMI seem the more likely of the three to be able to repair themselves. All three of these stocks are still oversold on each stock’s Slow Stochastic sub chart. This is probably a good time to open a position in (or at least leg into) one or more of these stocks. You should be able to ride it or them up in the short term. In the longer term you will have to follow economic events to see how they unfold. These are cyclical stocks with Betas of about 2. This means they will both fall and rebound much more quickly than the general market. We are set for the rebound now. I am thinking we will enjoy a good ride upward short term.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in CMI over the next 72 hours.