Turned the Corner

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Joy Global (JOYG) has turned the corner. Joy makes the big machines that mine raw materials from the ground. Think coal, copper, iron ore, oils sands, gold, silver — these materials are in heavy demand and it takes heavy machinery to feed the enourmous demand.

JOYG and Bucyrus (BUCY) were the two best mining equipment stocks. Last month, Caterpillar (CAT) bought Bucyrus, so now JOYG its JOYG and CAT. CAT is not focused in mining though, its a big company in many industries. I like JOYG because it’s focused where the growth is.

One-Year Chart

The ony-year chart shows JOYG at $87 is extended past its last breakout at $62. It’s easy to think we missed the run, but when the stock was $62 the fundamentals were’nt good and CAT had yet to pay-up for BUCY (showing demand is solid).

JOYG’s P/E is 17, whuch is the same P/E the stock had in the 2nd quarter of 2008. I think this stock deserves a P/E of around 17-20, which means the stock is fairly valued now.

Joy’s estimated Long Term Growth Rate is only 13%. Although this company looks to grow well, I prefer long-term growth rates of 20% or more.

Earnings Table

Joy had profits up 16% last quarter on a 9% rise in revenue. The company beat by 23 cents — had only met then profits would have been down 3%. WIth negative profit growth the prior three quarters, its easy to see the company just turned the corner when it reported profit growth last week. So for growth stock investors, the stock wasn’t a “Buy” in the $60s.

Also, before last week, this is what the annual profit picture looked like:

2009 4.41
2010 4.40
2011 4.79e

Now the estimates show:

2009 4.41
2010 4.40
2011 5.18e

So growth seems to be back.

Looking ahead to the next four quarters, estimates look good next quarter and only fair after that. I love that these estimates just jumped. Forecasts for mining demand in 2011 are very solid so I think JOYG should keep upping estimates.

Ten-Year Chart

Another knock on JOYG here is the stock is hitting resistance from the old-highs made in mid-2008. Although I think the stock can breakout, its still a negative.

Note the huge crash the stock had in late 2008. Although the stock fell hard, it wasn’t because the company wasn’t making good money. In the 2nd quarter of 2008 I thought JOYG would make $3.29 & $4.47 in 2008 & 2009. Then the economy cratered and the stock was still able to make $3.44 & $4.41 those two years. That’s nice, very nice.

Botom Line

I like JOYG but the estimates don’t show explosive growth for the next four quarters. Premier growth stocks have profit growth of 40% or more. That’s not happening here in the estimates. I also don’t like that the stock’s hittign resistance on the ten-year chart.

JOYG is rairly valued right now. I’m, considering buying it but its not in the same league of Netflix (NFLX) or Lululemon (LULU). I do like Joy Global because I think 2011 will be a year where energy stocks lead the way, I would rather purchase this stock on a pullback. It’s extended and upside to fair value is only fair.

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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.