When in doubt, sell.
A lot of investors are following that piece of advice lately, and who can really blame them?
Companies that are booming and producing record profits are watching their shares sold off in a fire sale as risk-adverse investors try to lock in any profit they can make.
Maybe they figure the good times won’t last. Who knows? All I know is that as a Rational Investor, I can take advantage of the irrationality by scooping up shares of undervalued companies during these turbulent times.
One industry that has caught my eye lately is construction and manufacturing. Growing concerns about slowing growth in Europe and China have weighted down many top stocks in the industry, making them more affordable for Rational Investors like you and me.
Last week, I told readers to cash in on The Manitowoc Company, another great buy in the construction industry (see also, “The Manitowoc Company: The Great American Super Stock“). Today, I want to talk about Terex Corp. (TEX) another leading maker of construction and mining equipment.
Concerns about whether the U.S. will slip into recession have undoubtedly hurt the stock. In fact, shares are off 28% year-to-date and nearly 50% from their 52-week highs.
Yes, TEX’s latest earnings report tells quite a different story. Revenue (excluding acquisitions and currency adjustments) rose 14% for the second quarter, compared with a year ago, and earnings were $2.32 per share compared with $1.66. Terex Corp. expects to earn between $6.85 and $7.15 per share for 2008.
According to Terex Corp. CEO Ron DeFeo, the infrastructure and commodity boom is driving strong demand for the company’s cranes and mining equipment, and the trend is expected to continue, given the increasing backlog for those products.
Good to know. However, input costs are presenting a challenge for the company. Mr. Defeo says TEX should be able to pass those costs on to its end-users after a brief lag for the rest of 2008–although operating margin will suffer mildly for the remainder of the year.
Shares trade for 48% of sales, less than two times book value and for about 7 times expected ’09 earnings. If you are a Rational Investor like myself, this is exactly the type of company to look for in this type of market. Build your holdings now–before it’s too late. For other Rational Investor construction and manufacturing stocks I’ve recommended lately, you’ll also want to read, “Chicago Bridge and Iron (CBI) Holding Steady” and “Profit From Big Infrastructure.”
This article was written by Jamie Dlugosch, editor, InvestorPlace.com. For more actionable insights likes this, go to: www.InvestorPlace.com.
