Heavy Metal – Stocks that Rock

My analyst Dimitri works with fingers planted on the keyboard and his head plugged into his iPod with Guns ‘N Roses and Kiss blasting into his brain. He claims that the “music” helps him concentrate but I think he does it partly to tune me out. Ah, well…I can’t really blame his preference to heavy metal versus my rantings. I asked him if perhaps some soft jazz or classical wouldn’t be more conducive to concentration, but he just shook his head and gave me the same smirk that the teenage bag-boys in the grocery store give me. So what if I am a bit of a fuddy-duddy?

But it got me thinking that heavy metal might be a timely subject for today’s blog especially when I read this morning that heavy-equipment maker Caterpillar (CAT) projected $60 billion in revenues by 2010 compared with previous estimates of $45 billion. That’s a 33% increase in guidance! And it’s not just CAT–all of the stocks in the heavy machinery group have been performing well. Wall Street analysts have given the industry an enthusiastic thumbs up for the next several years at least, citing an increasingly voracious appetite for mining, infrastructure, and agricultural products on a global scale. Since the dollar is expected to decline at least until the credit crunch is resolved, companies with international exposure in these areas will likely fare better than their domestic counterparts, especially in a recessionary market.

So what companies can be expected to do well? Here’s my list of prospective candidates.

Agricultural Machinery
Deere (DE):
Deere manufactures a long list of agricultural equipment, from tractors and tillers to irrigation equipment. It recently purchased 50% of a Chinese equipment maker thus expanding its presence in that country. According to a UBS report, the U.S. Department of Agriculture expects 2008 farm income to be up 4% from 2007 levels and up 51% from the prior 10-year average. Jim Cramer praised the company’s CEO saying that Deere is well-positioned to profit from the continuing worldwide upgrades in farm equipment. The stock has been trading in a tight range since the end of January. If it breaks its $90 range high, that would be a signal to start buying up shares. If it breaks its previous all-time high of $95, then I’d look to jump in with both feet. The company’s next earnings release is May 14th and it does pay a modest dividend.

Lindsay Corp. (LNN): This company services both the agricultural sector with its irrigation equipment and the infrastructure sector with its traffic management and safety devices. It has wholly owned subsidiaries in Europe, Africa, and South America. Net revenues and income have been increasing dramatically on a year-over-year basis. The stock is trading 9% off of its recent high and right now it’s hard to tell exactly where it’s headed. If it breaks its high of $80, then I’d be tempted to step in. The company reports earnings on March 19th and it pays a small dividend.

Caterpillar (CAT): CAT is also a multi-sector play, providing heavy equipment and equipment rentals to all of the above mentioned sectors with emphasis mostly in infrastructure and mining. The stock gapped up this morning when the company upped its sales forecast. It also expects earnings per share to grow between 15% and 20% through 2012 due to “significant new infrastructure growth opportunities in the world’s emerging markets and a need for infrastructure reinvestment in North America and Europe,” according to the company’s CEO. CAT is expanding its presence in China as well as its service parts distribution network in the US. The stock has been in a decline since last August until this January when it staged a turnaround. Today it broke short-term resistance, but I wouldn’t jump in yet–wait until it surpasses the next resistance level of $77.50. The company reports earnings sometime in mid-April and it too pays a dividend.

Manitowoc (MTW): This company has three separate divisions, one of them being cranes, cranes, and more cranes. The revenues generated from worldwide crane sales account for 84% of company revenues with orders backlogged for over a year. Just yesterday it announced a joint venture with a Chinese crane manufacturer and expects its emerging market crane sales to hit the $1 billion mark in 2008 with total annual sales topping $4.1 billion. Despite a slowdown in US construction, domestic crane sales should remain strong since only 6% are related to commercial construction and a mere 1% to residental construction. The stock has been steadily rising since January but it needs to make a new high (above $44) before I’d be a buyer. Earnings are scheduled for April 28th and the company pays a small dividend.

Bucyrus (BUCY): Bucyrus designs and manufactures equipment for both surface and underground mining to mining centers on virtually every continent. It also provides replacement parts and servicing for its equipment. Just today Zack’s, the independent advisory firm, added it to its buy list citing an average earnings surprise of more than 15% for the last four quarters and an increase in this quarter’s earnings estimates. The stock has been steam-rolling straight up the chart, gaining 620% since inception in late 2004–zowie! (Too bad Zack’s didn’t rate it a buy back then.) Chart volume suggests that institutions may be lightening up on their positions as evidenced by strong selling on down days. The stock is currently trying to push past its recent all-time high of $112 and if it can manage that, then I’d become a buyer.

Joy Global (JOYG): One of my childhood girlfriends joined JOYG when the company was then called Harnischfeger. She’s now a vice president and the company is now Joy Global–both good things, particularly the latter since not only was the previous name a mouthful to pronounce but even tougher to spell. (It’s a word that might even stump the national spelling bee champion.) The company’s focus is similar to Bucyrus’s (mining equipment with worldwide sales), and both are located in Milwaukee (and Manitowoc is close by, too–go Badgers and Packers!). Sorry. Yesterday, the company not only reported stellar earnings but an order backlog extending into 2010. Had you bought the stock at its low five years ago, you would have enjoyed a nice 1600% gain on your investment. (Hm, next time I see my girlfriend she’s picking up the lunch tab.) The stock has been trying to punch through major resistance set by its all-time high of $70 back in 2006, and any breakthrough on decent volume would be a strong buy signal.

I guess I have to be grateful (dead) for Dimitri’s choice of music because if it wasn’t for him, I wouldn’t have thought of investigating these stocks. I hope Wall Street is correct in assuming that these companies will outperform the market over the next several years for I would like to see them all do well, especially the Wisconsin-based ones. As a native-born cheesehead, I’d like the state to be known for something more than beer, brats, tacky foam hats, and the Packers, not that there’s anything wrong with that (except for the foam hats–they’re just plain embarrassing).

“I wanna rock ‘n’ roll all night…and party everyday… ” Dimitri’s music is starting to get to me–help!

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