Joy Global (JOY) isn’t having a very good year, as its orders have plunged amidst a slow-down in capital spending in the mining industry due to tepid global growth. This is a very solid company that can be characterized as a ‘growth cyclical’, and the time to buy stocks like this, in my view, is when things don’t look so great. The earnings are likely to decline sharply in 2014 based on weak orders currently, but then pick up in 2015. If this proves correct, 2014 should be a better year for the stock as investors look forward to the upturn. I estimate that JOY could trade to 73 over the next year, which would represent a total return of 33%.
Based in Milwaukee, Joy Global makes mining equipment that is used for coal and mineral extraction. The company competes closely with cross-town rival Bucyrus, which was acquired by Caterpillar (CAT) in 2011. The two companies were very similar, but JOY now differentiates itself for its direct selling, which puts it closer to the customer than CAT’s model of using a network of outside dealers, a strategy that should ultimately allow the company to gain market share. One key to understanding JOY is its early 2012 purchase of International Mining Machinery. While strategically sound, the buy of this Chinese company was very poorly timed.
JOY divides its business into two segments: Underground Mining Machinery and Surface Mining Equipment, both similar in size with respect to sales and operating income. Importantly, the company has a very large ‘aftermarkets’ business and doesn’t focus solely on new equipment sales.