Joy Global (NYSE:JOY) is one of the few stocks from the commodity complex that has not had a significant run up to start 2012. Concerns about domestic coal production and an earnings report that just missed on earnings and was a bit light on revenues, have kept a lid on price appreciation in JOY's shares. However, it appears to me that the stock is undervalued. Long term investors who believe a secular long term commodity boom is underway should use Joy Global's recent weakness to accumulate shares.
"Joy Global Inc. engages in the manufacture and servicing of mining equipment for the extraction of coal, copper, iron ore, oil sands, and other minerals. The company operates in two segments, Underground Mining Machinery and Surface Mining Equipment." (Business Description from Yahoo Finance)
7 reasons to add JOY to your portfolio at under $86 a share:
- Joy Global has a very low five year projected PEG (.58) and is selling at under 10 times forward earnings.
- Susquehanna just lifted its price target on Joy Global to $114 from $102. The median analysts' price target for the 12 analysts that cover JOY is $105 a share. S&P has a "Buy" rating and a $119 a share target on the stock.
- The company is projected to have rapidly increasing EPS. It earned $5.92 a share in FY2011 and analysts expect $7.63 in FY2012 and $8.65 in FY2013.
- Appetite is coming back for equity in new mines which should bode well for mining equipment makers like Joy Global.
- Earnings estimates for FY2012 and FY2013 have increased significantly over the last three months, despite earnings miss.
- The company's recent acquisitions should start to pay dividends in coming years and it had a ROIC of nearly 20% in 2011.
- The company is well diversified across mining product lines and geographies, and has had annual revenue growth of better than 14% over the past decade, although sales growth can be lumpy.
Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in JOY over the next 72 hours.