With shares of Joy Global (NASDAQ:JOY) trading at around $68.40, is JOY an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:
C = Catalyst for the Stock’s Movement
Joy Global is a well-run company that has a lot going for it, but external circumstances might present a challenging environment in 2013. On the bright side, Joy Global sports higher-than-industry averages for profit margin, net income, revenue growth, and cash flow. ROE is also an impressive 33.88 percent. Joy Global currently yields 1 percent, which isn’t going to excite many investors, but it’s better than nothing. The valuation seems appealing with a Trailing P/E of 9.59 and a Forward P/E of 10.38. So… what could possibly be wrong?
The main problem is a slowdown in the commodities boom. The upward trend in commodities has now leveled off for a long period of time. This usually indicates exhausted buying. It doesn’t necessarily mean a reversal, but the upside potential is very limited. This happened mostly due to a slowdown in China. Of course, stimulus measures have been taken in China, which will help short term, but that won’t last forever. The growth rate in China has peaked. However, there will still be growth. With a slowdown in China, companies like Rio Tinto (NYSE:RIO) have cut back on their spending, which is bad news for Joy Global.
It’s possible that this bad news can be offset by coal demand in India. Coal is a very affordable way to produce energy, and India relies on coal to produce 55 percent of its energy. That said, investing in a company because there might be an offset to negative news is rarely a good idea.
Let’s take a look at some important numbers for Joy Global…