Track the companies that matter to you. It's FREE! Click one of these fan favorites to get started: Apple; Google; Ford.



Time to Reverse a Successful Call on Terex

Something just didn't feel right. I've followed equipment manufacturer Terex (NYSE: TEX  ) pretty closely over the past several years and admired the company's adaptations to some very challenging business conditions. But when the stock surged beyond $26 per share a few months ago, I grew uncomfortable with both the share valuation and the technical picture, so I stepped outside of my comfort zone to issue a near-term bearish call on the shares.

As it turned out, the stock pulled back even more sharply than I feared. By late last week, Terex had shed some 35% in less than three months, and I leapt at the chance to re-initiate a bullish CAPScall on the stock at $16.82 last Thursday. In the interim, the shares eroded from a lofty valuation of 15 times estimated 2012 earnings to a far more alluring single-digit multiple. After shedding a relative premium over its equipment-manufacturing peers, Terex now trades at a comparable 2012 earnings multiple to the iconic behemoths Caterpillar (NYSE: CAT  ) and Deere (NYSE: DE  ) . The following chart covers the period from Feb. 24 -- when my article calling for the pullback appeared -- to May 17, when I reinitiated my bullish CAPScall. As you will see, the entire group of equipment manufacturers suffered noteworthy weakness relative to the slipping Dow Jones Industrial Average (INDEX: ^DJI  ) , while Terex and mining equipment specialist Joy Global (Nasdaq: JOY  ) vastly outpaced Caterpillar and Deere to the downside.

TEX Chart

TEX data by YCharts

On the technical side, the Relative Strength Index shifted cleanly and convincingly from overbought territory above RSI(14) 80 to deeply oversold territory beneath an RSI(14) of 20. Although I characterize myself as a fundamental value investor with a strictly long-term focus, I do employ technical tools quite routinely to help inform the timing of purchases and sales. Because I issued my call for a pullback just after a trio of analysts had issued "outperform" ratings on the stock, the elevated RSI reading provided a welcome confidence boost to my Foolish contrarian call.

Oddly enough, this marks the second time this long-term buy-and-hold investor has called for a pullback in shares of Terex that could have spared investors from a subsequent 35% decline in the stock. In the wake of this latest decline, I hold a bullish outlook from these levels. First-quarter operating cash flows from Terex have been consistently negative for about a decade, but in the first quarter of 2012 Terex turned cash-flow positive for the period. I will continue to watch Terex closely and track the company's operational achievements over time, and I invite you to follow along by bookmarking my article list or following me on Twitter. This company has proven its mettle in adapting to a grueling business cycle, and I believe the recent pullback offers long-term investors a dramatically compelling entry point.

Fool contributor Christopher Barker can be found blogging actively and acting Foolishly within the CAPS community under the username TMFSinchiruna. He tweets. He owns no shares in the companies mentioned. The Motley Fool owns shares of Joy Global. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Read/Post Comments (0) | Recommend This Article (7)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

Compare Brokers

Fool Disclosure

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 1893155, ~/Articles/ArticleHandler.aspx, 10/25/2016 12:22:52 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Today's Market

updated Moments ago Sponsored by:
DOW 18,173.65 -49.38 -0.27%
S&P 500 2,143.45 -7.88 -0.37%
NASD 5,284.98 -24.85 -0.47%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

10/25/2016 12:07 PM
TEX $23.59 Down -0.40 -1.67%
Terex CAPS Rating: *****
^DJI $18167.25 Down -55.78 -0.31%
CAT $84.98 Down -1.02 -1.18%
Caterpillar CAPS Rating: ***
DE $86.45 Down -0.25 -0.29%
John Deere CAPS Rating: ***