A Tale of Two Manufacturing Titans

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Every great story grabs the reader right from the start, but as long as indiscriminate selling rules the day on Wall Street, only half of Dickens' legendary opening is relevant here. Right now, for investors, these are simply the worst of times.

As an homage to the Dickens classic, let us consider a tale of two companies. The first, Terex (NYSE: TEX), manufactures a wide range of industrial products from cranes to utility trucks -- including mining equipment. The second, Bucyrus (Nasdaq: BUCY), dedicates itself solely to the manufacture of mining equipment. Given the prevailing assumption among the world's investors that industrial demand is doomed, let's look to earnings to determine whether there may be some exceptions to consider within that assumption.

Breaking a long-running trend, Terex posted a decidedly disappointing third quarter. Net earnings slipped by 34% to $93.8 million, even as net sales increased almost 15% to more than $2.5 billion. The total backlog of pending equipment sales, a crucial forward indicator, fell 14% just since the second quarter. Backlogs for Terex's aerial work platforms and construction equipment fell by more than 60% and 40%, respectively. In contrast, Terex reported an 8% increase in backlogged crane orders, and only a 9% drop in pending sales of mining equipment.

Bucyrus, meanwhile, enjoyed another knockout quarter with a 124% increase in net earnings, a 380-basis point expansion of EBITDA margin to 17.9%, and a whopping 74% increase in total sales backlog to $2.5 billion. The company's entry into the underground mining equipment business with last year's acquisition of DBT lends limited value to year-over-year comparisons, but nonetheless this was a rock-solid quarter for Bucyrus.

Diversification, it seems, is not always a Fool's best friend. Whether temporarily reconsidering the conventional wisdom of formulaic diversification within a portfolio, or identifying the top choice within a given sector, I believe this is a time for precisely targeted investing. Recent results from Peabody Energy (NYSE: BTU) and railroad companies like Norfolk Southern (NYSE: NSC) confirm that demand for coal, at the very least, remains robust with a positive long-term outlook.

Because I believe the mining industry will exhibit surprising strength once fundamentals again hold sway over investors, targeted plays like Joy Global (Nasdaq: JOYG) and Bucyrus make a lot of sense to me here. Diversified manufacturers like Terex and Manitowoc (NYSE: MTW) may one day benefit again from their diversity … but not yet.

Further Foolishness:

• Even targeted equipment plays are getting hammered.
• Terex warned us of troubles brewing.
• Terex recently expanded its product line.