by David Sandell, contributing editor The Complete Investor
Metals and other resources are getting harder and harder to mine as the
more accessible deposits become depleted. This is forcing producers to
mine in ever more challenging places, including deep underground.
Investors can benefit by buying shares in the suppliers of mining equipment. One superb example is Milwaukee-based Joy Global
With a market value of $9 billion, Joy Global makes products used in
mining everything from coal and oil sands to copper and iron ore to gold
and other minerals. It represents half of what is essentially an
However, since the other half is equipment
producer Bucyrus, acquired by Caterpillar in 2011, Joy Global is the
only pure play on spending growth in the mining equipment industry.
Demand for Joy Global's products has been strong, and the company has taken full advantage.
Revenues have grown from just over $2.5 billion in fiscal 2007 (ended
October) to $4.4 billion for the year ended October 2011. Net income has
grown even faster, from $280 million in fiscal 2007 to $610 million
These positive trends are continuing. In late
January, Joy's CEO Michael Sutherlin upped his expectation for growth in
capital spending by the mining industry this year to 15 percent.
a month earlier he'd been looking for just 10 percent, but the
recovering U.S. economy, China's commitment to growth, and India's
shrinking coal inventories all pointed to the higher level, reinforced
as more of the company's customers confirmed their spending plans.
Around half of Joy Global's revenues come from abroad, and not surprisingly the company is particularly focused on China.
December the company purchased a majority stake in China's
International Mining Machinery Holdings, which manufactures equipment
for underground coal mining; in early January, Joy began a tender offer
for the remaining shares.
It plans to operate the subsidiary as a
separate unit that will focus on mid-tier Chinese mines, a group that
includes 100 customers and several hundred mines.
Global's franchise-like position in a thriving industry, shares are
surprisingly cheap, trading at only 12 times current-year earnings and
11 times estimated 2013 earnings.
With earnings growth projected
to be in the high teens for at least the next few years, the PEG of 0.6
makes Joy Global a compelling buy.