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The Joy of Global Mining

Action Alerts Plus Research Director Stephanie Link and Jim Cramer responded to the earnings results.
An encouraging sign is that the base order rate (before major projects) has been consistent over the last five quarters. We had been looking for stability, which is key and now the next leg will be the recovery.

Should any hints of this emerge over the next few months, they'll be viewed positively, and we want to be ahead of that. Backlog fell 9% sequentially, to $2.2 billion from $2.4 billion. But the book-to-bill ratio, at 0.83x, was better than 0.8x in the prior year and the whisper numbers, which were 0.7x and below. Book-to-bill was 0.89x in the prior quarter."

Both Link and Cramer reflected on the downside as well, hinting that the global metals and mineral surpluses are most likely reflected in the current pricing.
On the negative side, China remains slow, with electricity demand growing at only half the rate that it has done in prior years. Growth is estimated at 5% in 2013, down from 7% over the last five years. We think this is well-known, and that it's the reason Joy Global trades at half its multiple, as compared with its historical average. India, for its part, remains strong with 29% growth.

As the chart above indicates, JOY's shares are, as of the close of the market on Friday, 22% below its 52-week high of $69.19. Selling at a current PE ratio (TTM) of 7.6 and a forward (one-year) ratio of 9, the share price is beginning to look oversold. Its five-year expected PEG ratio is only 0.84.

At a Friday closing share price of $54.08, the current dividend offers a yield-to-price of 1.3%, which represents a sustainable payout ratio of only 10%. This most likely reflects management's carefulness about utilizing the company's $270 million in total cash (most recent quarter) carefully.

With levered free cash flow (TTM) of $736 million, and with the prospects of a recovering worldwide economy in the second half of the year, JOY may do better than the pundits anticipate. It's not likely to see its share price leap 35% in 2 days like a certain donut company, but it does have increasing upside potential.

At the time of publication the author had no position in any of the stocks mentioned.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.
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