Stock of the Week
NYSE Symbol: JOY
Price as of 8/31: $53.38
August and the summer season come to an end for Wall Street this week. Last minute vacations have brought the volume to a crawl on the major exchanges this week. Today's big Fed speech in Jackson Hole produced no new stimulus plans. Many feared a correction if the Fed didn't provide a stimulus, but no such sell off came to fruition. Investors seem to be getting more bullish adding money to the beaten up sectors like materials, energy, and industrials. One such industrial company reported disappointing earnings this week, but made encouraging comments in their conference call causing the stock to bounce of its 52 week low, finishing the day up 9% from the lows. The stock of the week is mining equipment maker, Joy Global. On the charts, Joy Global bouncing off its 52 week low on heavy volume hopefully signaled a key turnaround. Longer term at these levels, Joy Global is well positioned to benefit from global growth particularly out of China. If the pricing of coal has in fact bottomed, Joy Global and its stock have plenty of upside in the coming years.
As mentioned, Joy Global reported disappointing earnings on Wednesday. The mining equipment company reported net income of $193.5 million, or $1.81 per share well below estimates of $1.88. Revenue grew 22.3% to $1.39 billion, but once again came in below estimates of $1.42 billion. Following the earnings, the company lowered fiscal 2012 adjusted earnings between $7.05 and $7.20 per share, down from its prior outlook of $7.15 to $7.45 per share. It also cut its 2012 revenue forecast to between $5.45 billion and $5.55 billion, from $5.5 billion to $5.7 billion. A milder winter in the United States, lower natural gas prices, and higher hydro-power generation in China hurt demand for coal all year long. To cope with falling demand for the commodity, coal producers have cut back on output, in turn reducing demand for Joy Global's mining equipment such as giant shovels and draglines. Joy Global's stock is down 28% year to date. But what got the stock to turn around on Wednesday were comments on the conference call from management pointing to evidence that both the U.S. and China markets for coal have bottomed although the recovery could be sluggish. That was all investors needed to hear as the stock surged off its' lows.
Even though Joy Global lowered earnings estimates, the stock is very attractive trading for 8 times reduced earnings, 1.1 times sales, and 2.2 times book. If the coal market and pricing have bottomed, then Joy Global is very attractive at these levels. But the stock is not for conservative investors with a high beta and a dividend yield of 1.4% that isn't enough to attract income investors. Joy Gobal's stock is a growth play on the rebound in coal demand and China overall.