-- Buying 50 shares of Caterpillar (CAT:NYSE) at about
This morning, Joy Global (JOY:NYSE) reported earnings this
morning that were essentially in line with consensus at
$1.11 a share, compared with the $1.12 consensus, but
adjusting for the 4 point higher tax rate, it would have
actually beaten the Street by $0.05 -- a testament to this
management team and its cost discipline. Revenue was in line
at $1.2 billion. The company lowered full-year guidance by
11% at the midpoint, and that is why the stock is down 4%
It's pretty clear that the macro environment remains
challenging for the company -- namely the oversupply and
weak demand in the coal market -- and the pressure continued
throughout the quarter. Coal accounts for 67% of total
revenue for Joy Global. The company did talk about the
recovery in the iron ore and copper markets, but that
accounts for a much smaller piece of total revenue at the
company, at around 20% of total.
One of the bright spots in Joy Global's quarter was the
improvement in bookings in the aftermarket segment, which
posted a 19% quarter-over-quarter increase, and a book-to-
bill ratio back above 1x for the first time in seven
quarters. This was mainly due to strong rebuild orders in
The combination of the coal overhang and the rally in the
shares off the lows led us to take gains in Joy Global, and
we are now out of that position. We began a small position
in Caterpillar (CAT:NYSE) yesterday as a contrarian play,
more for the recovery in power systems, which accounts 50%
of total profit. Caterpillar does have exposure to mining
(Bucyrus is 10% the overall resource industries segment),
but it is more diversified in minerals and less of a pure
play in coal.
Also, the same trends seen at Joy Global in the aftermarket
segment should also help Caterpillar. Furthermore,
expectations are also pretty low, since management has
already guided for a 40% decline this year in its resource
industries segment (compared with Joy Global's guidance of
After you have received this Alert, we'll add 50 shares of
Caterpillar (CAT:NYSE) at about $85.60, since shares down in
sympathy with JOY. After our trade, we will own 550 shares
of CAT, or 1.5% of the portfolio.
As always, you can submit your questions for Ask AAP at
firstname.lastname@example.org. Please put "Ask AAP" in the
email subject line. Please remember that Action Alerts PLUS
is not intended to provide personalized investment advice.
So do not email Jim Cramer and Stephanie Link seeking
personalized investment advice, which they cannot provide.
Jim Cramer, Stephanie Link, and TheStreet Research Team
DISCLOSURE: At the time of publication, Action Alerts PLUS
was long CAT.
We wanted more exposure to tech and to the optical space in particular.
The company is returning its focus to its core business, and it's levered to the global recovery.
Our portfolio is set up for this better-than-expected economic news.
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