With economic data from Europe, China and even the United States coming in weak or looking shaky at best, investors have become increasingly concerned about global growth. Even though the Dow Jones Index has been pushed to highs not seen in over 4 years, industrial-type companies that are exposed to the global economy have been punished. Heavy-equipment makers have been hit hard in the last few weeks due to disappointing earnings and guidance. For example, Caterpillar (CAT) is trading at about $85 per share, well below the highs of nearly $117 set earlier this year. Deere & Company (DE) is trading at $73 per share, which is below the 52-week highs of nearly $90. The general decline in these industrial stocks are a result of the global headwinds facing these companies. However, it could be time to start considering potential buying opportunities.
Joy Global (JOY) shares appear to be oversold and perhaps one of the best stock bargains in the industrial sector. Thanks to a steep sell-off the shares now trade at about half of the 52-week high, and for just around 7 times earnings. The stock also offers a reasonable dividend which currently yields about 1.6%. Here is a closer look at the company:
Joy Global is a maker of equipment and aftermarket parts and services for the mining industries. The heavy machinery it manufactures are used for the mining of natural resources such as coal, copper, iron ore, oil sands, gold, etc. The slowdown in China has impacted companies like Joy Global because China is a major consumer of natural resources. Joy Global has also been impacted by the negative headwinds in the coal industry. Coal prices have been dropping because utilities and other major energy consumers have been switching to natural gas. Coal has also declined in price because of lower demand from China.
However, investors might be overreacting to these already well-known concerns. In the long-term, China is poised for a secular uptrend thanks to rising incomes and population growth. The Chinese Government has responded to the recent slowdown by cutting interest rates. This could lead to increased demand in the next couple of quarters. Also, a number of leading coal producers have cut production in response to weak prices, and this could result in a rebound in the coming quarters as demand and supply find more balance.
A rebound in Joy Global shares could come before the economy and industrial demand takes place. That is why it could make sense to begin accumulating shares now, especially on and further pullbacks. Analysts at Barclays recently reiterated an outperform rating for Joy Global shares and set a $88 price target. Investors who buy Joy Global shares around current levels could see upside of about 75%.
Key Data Points For Joy Global From Yahoo Finance:
Current price: $50
52-Week Range: $47.69 to $96
Dividend: 70 cents which provides a yield of 1.3%
2012 Earnings Estimate: $7.26 per share
2013 Earnings Estimate: $7.57 per share
P/E Ratio: about 7 times earnings
Data is sourced from Yahoo Finance. No guarantees or representations are made. Please consult a financial advisor before making investments.