Annotated article summary from this weekend's Barron's. Receive all our Barron's summaries by signing up here:
Chomping Its Way to Paydirt by Vito J. Racanelli
Summary: Joy Global (JOYG) is the world's largest manufacturer of mining equipment. Increasing global need for such commodities as coal and copper has created a strong demand for its services, yet shares are down from a high around $72 in April to about $47. In its fiscal Q1 results in January, the company reported a 22% drop in underground mining equipment sales, and the stock sank accordingly. Around 45% of Joy Global's revenue comes from U.S. coal miners, who have suffered from large inventories due to the winter's unseasonably warm weather. U.S. electricity demand, half of it supplied by coal-fired generators, was little changed in '06. But coal inventories are declining, and coal miner stocks are reacting positively. And Joy Global doesn't rely on just coal: it also produces machinery for the extraction of gold, copper, and oil sands. The overseas market, responsible for 50% of the firm's sales, is regarded as a long-term source of growth. China, for example, is expected to have a 50% increase in power demand by 2010. With about a 60% market share and relatively low debt, the stock's currently low valuation is attracting large institutional investors. Bottom Line: "The stock could recover by 30% or more."
JOYG 1-yr chart