Nothing was wrong with Joy Global's
What's ailing Joy?
The cooling of the Chinese economy is bad news for Joy, as any slowdown in the world's largest coal-consuming nation translates into softer demand for mining equipment. Joy's top line in recent times grew quite a bit because of the boom in commodity consumption and mining in China. Right now, things are looking bleaker, with the economy's manufacturing data weakening by the day. The nation's May Purchasing Managers' Index (an important tool for gauging manufacturing activity) slipped to its lowest level this year. Fears of the economy's second-quarter growth rate falling below the 8% mark are thick in the air.
It's not just China. The coal industry in the U.S. is in a rough state, too. Several coal stocks have lost significant value in recent months. The main culprits? Cheap natural gas and concerns about the global economy. Falling commodity prices and overall fears have even compelled major mining companies to slow their spending plans down. The world's largest mining company, BHP Billiton
With more than two-thirds of Joy's revenue coming from coal-mining customers, it had to feel the pinch. The company's weak outlook even dragged Caterpillar's
Not so bad
Things might not seem bright in the near term, but I think long-term investors should get excited especially after Joy's stock price hit its 52-week low post-results. Fool colleague Sean Williams made some very valid points about why coal is here to stay. And not everyone's bearish on the mining sector as a whole.
Take Caterpillar, for instance. It continues to maintain a positive stance on the global mining markets including China, sticking to its forecast of an 8% full-year growth for the nation, and believing it to be a great long-term opportunity. Another great example is that of a megaconglomerate that has just forayed deeper into the mining sector: General Electric
The Foolish bottom line
Joy is expecting China to bottom out soon. Research company Freedonia Group, too, is expecting the sector to recover by next year, and is projecting the world mining equipment market to clock an annual growth of 8.5% through 2015, with the Asia-Pacific region leading the pack.
With long-term optimism intact, the slide in Joy's stock price looks like a good opportunity to me. Its trailing P/E of 8.2 is lower than Cat's trailing P/E of 10.5. A forward P/E of just 6.7 further suggests room for upside in the stock. The company has been balancing its organic and inorganic growth well, and you might do well to add the stock to your watchlist. Click here to add Joy Global.
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