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Energy is Down But Not Out

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Energy stocks aren’t hot anymore. The market is in a correction due to concerns about the economy slowing. Joy Global (JOY) has been down with the rest of the energy stocks, but a look at the numbers suggest energy is down but not out.

One-Year Chart

JOYG’s one-year chart pains a perfect picture of the energy boom-bust we’ve seen in the last twelve months. The stock was doing great until May, when its sometimes good to sell in may and go away.

JOYG’s P/E is only 15, and the stock is worth 15-20 times earnings. So the stock is in a buyable area right now.

Profits grew 32% in each of the last two quarters and are expected to climb 31% next quarter and 22% two quarters from now. The current outlook for Joy Global is good.

Earnings Table

The Earnings Table is really green.

JOYG beat by 17 cents last quarter and stated demand remains strong for its digging equipment.

I really like how Annual Profit Estimates have been increasing each quarter.

JOYG has a P/E of only 15, if the company does make the $7.74 expected in 2013 — and keeps its 15 P/E — then we would be looking at a $116 stock.  JOYG is $85 today, so that’s a 36% gain in two years. I think the stock would be deserving of a P/E between 15 and 20 so this upside is conservative. I think this stock can compound at 20% the next couple of years, but energy related companies have eranings that aren’t predictable.

Bottom Line

I like this stock, but I’m not getting into more energy until the sector shows some significant strength. JOYG stays on my radar.

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David Sharek David Sharek is stock portfolio manager and CEO of DavidSharek.com. David believes a company's profits ultimately drive the price of its stock. His book The School of Hard Stocks can be found on Amazon.com.