RD's Picks

I didn't have much success trading the earnings releases of Sun Hydraulics (SNHY) and Kubota (KUB) last week. I've sold them both out of my slo-port at a slight loss. Over the past two weeks of trading heavy industry earnings, as described in my earlier blog entries here and here, I've made a little profit with two winners (BUCY and NC) and three losers (RBC, SNHY and KUB). The most successful of the five trades was Bucyrus and while reviewing it, I noticed a competitor in the mining equipment business, Joy Global (JOYG) will be reporting on Dec 18.

From the Yahoo profile, "Joy Global, Inc. engages in the manufacture, servicing, and distribution of mining equipment for the extraction of coal, and other minerals and ores worldwide." Heavy industrial companies with a worldwide market have been holding up pretty well in this market and JOYG definitely fits that profile. Mining has been a strong sector and JOYG's competitor Bucyrus recently reported strong earnings and a solid order book. Joy trades at a slight discount to Bucyrus on fwd PE and a substantial discount based on PEG.

As of 10 Nov 07, the company is trading at a trailing PE of 20.15, fwd PE of 15.75, PEG of 0.62. Profit margin is 11.81% with an operating margin of 18.78%. JOYG pays a dividend of 60 cents/year for a yield at today's price of 1.1%.

I believe JOYG is a buy here in the mid-50's and could easily trade up to the mid-60's / low-70's if it were to get a similar multiple to Bucyrus. I've added some to my slo-port and have room to add a little more on any further pullbacks.

Other notes:
This was not a good week to have a big position in Cisco. The earnings report was pretty good, but forward guidance was a little lower than expected. From the sell-off, it looks like the market was expecting a 'beat and raise.' I haven't had a chance to read the conference call transcript yet, but plan to over the weekend. This sell-off looks very similar to what happened after the May earnings call - if so, it's a good buying opportunity. I'm holding on to my SLO Cisco overweight, but will sell it down to an 8-10% position if we get a bounce next week.

RPM has been hammered lately on no news. Bank of America downgraded it to neutral on Friday. The stock now sports a dividend yield of 4%. The CEO made a 10,000 share open market purchase on Friday. Not sure what's going on, but if this is just getting caught in the market downdraft, it's worth a look for income investors. This is one of those companies that have been raising the dividend every year for 34 years. It's probably not a great SLO buy since there aren't likely to be any events to drive the stock price between now and the end of the year.

With last week's market slide, the S&P 500 is now down for the contest duration.

Thanks for reading and have a great week.

Disclosure: I own shares of CISCO and RPM, but don't have a position in any of the other companies mentioned.

Comments: View Comments |  Saturday November 10, 2007