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Rash Menaria
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Ex Hedgie focusing on ideas with catalyst. Here are a couple of my original ideas: Small Cap Tech Rediff (REDF): Recommended buy at less than $2 in August 2010. Within 1.5 months of my recommendation it touched $6. It is currently trading at $9.39.... More
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  • Terex (NYSE: TEX) : Finally the action time 5 comments
    Sep 20, 2010 8:24 AM | about stocks: TEX, CAT, JOY, BUCY

    Terex fundamentals are showing good signs of improvements. Stock has just started reacting to it and its an excellent time to buy. The company has 4 segments Aerial Work Platform (NYSE:AWP), Material Processing, Construction and Cranes. Following are the main fundamental catalysts for the stock: 

    AWP segment: (According to my checks) Quoting activity has increased significantly during the quarter. Orders would start coming to backlog in 4Q of current year.

    This is a business with 30%+ incremental margins (model a bit higher for initial years) and any return back in this business is good enough sign to bring the catalytic investors back.

    Material Processing:

    Continues to be very strong. Company expects to make it a $1.6 bn business by 2013 and right way to model it is a linear increase. Not commenting on 2013 target but for this year the sequential rate of increase has thus far continued and again y most of the sell side no.s are underestimating it.

    Stabilizing crane business:

    Rough terrain cranes are seeing ramp up in RFPs in Middle East and Russia after bouncing along the bottom for so long. Slow drift down in larger cranes is likely to be offset fully by this. Overall crane business which has concerned investors for so long has finally bottomed.

    Book to bill

    4Q would be a step up as far as book to bill is concerned (thanks to AWP booking) however 3Q is not likely to disappoint either.

    Better than expected results for the second half.

    Thanks to the strong trends Terex is likely to do better than breakeven at operating profit level for the 2010. Not sure if they would guide to it explicitly on 3Q con call/investor day but I think it would be pretty much obvious by their tone.

    Am surprised some of the sell side guys still have negative EPS projection for fourth Quarter.

    Replacement cycle

    According to both CAT & TEX management, this is the widely misunderstood fact among most sell side and buy side guys. (Even those who say they understand it, are actually missing the magnitude). Caterpillar in all probability is going to positively surprise on preliminary 2011 guidance (at 3Q con. call) thanks to the replacement demand. That will bode well for Terex.

    What to expect of the share price?

    Terex is down 21% from April end peak while Caterpillar is scaling 52 week high. Caterpillar is already seeing positive trends for sometime now, while for Terex the real inflection has started occurring just now- so ideally Terex should be seeing better upside.

    The stock is likely to cross its 52 weeks high on the back of these positive catalysts. Given the recent buying interest in the stock I would be surprised if does wait for actual 3Q earnings release/ Investor day to go up to that level… As buy siders start getting the sense on real trends, the stock will go past $28 in next few weeks even before actual 3Q results.

    Disclosure: Long TEX
    Stocks: TEX, CAT, JOY, BUCY
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Comments (5)
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  • Michael Bryant
    , contributor
    Comments (7055) | Send Message
    I would be long this stock. Could reach $100, its pre-crisis peak, in the next few years. Certainly the macroeconomics of the machinery business is positive. Looks good. But remember, any short-term gain is taxed 30%. So if you can't make 30%, technically you lose money. Long-term gains are taxed at 15%. And I am sure this stock will do much better than 15% over the long-term.


    Long-term = greater than 1 year
    20 Sep 2010, 11:30 AM Reply Like
  • Rash Menaria
    , contributor
    Comments (105) | Send Message
    Author’s reply » "So if you can't make 30%, technically you lose money. " Whats this Mike?


    I am not a long term guy. I look for catalyst to stock price and there are many for terex in near term. There is a nice upside here over next few weeks.
    20 Sep 2010, 11:46 AM Reply Like
  • Michael Bryant
    , contributor
    Comments (7055) | Send Message
    "So if you can't make 30%, technically you lose money. " Whats this Mike?
    answer: Simply math. By taking short-term profits, you have to pay 30% tax. Say the stock goes up 20%, and you invested $200.


    $200*1.2= $240
    tax: (-) $240*0.3= $72


    That is less than your initial $200, therefore you lost money.


    However, if you can gain 20% many times a year, you can compound the money and make a profit. Using excel, if you find a 30% gainer 35 times, that is equivalent to growing your principle 9200% or so.


    And I look for catalyst, too. I like to play the bidding wars, buyouts, takeover targets, of FDA approvals.
    20 Sep 2010, 08:19 PM Reply Like
  • Rash Menaria
    , contributor
    Comments (105) | Send Message
    Author’s reply » Mike you pay taxes on profit only. so the total tax in you example would be (Tax rate) * (Profit) =0.3*40= $12


    Hence you are left with $228>$200
    21 Sep 2010, 04:39 AM Reply Like
  • Michael Bryant
    , contributor
    Comments (7055) | Send Message
    Oh, okay. Thanks. Didn't know that.
    21 Sep 2010, 09:39 AM Reply Like
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