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The Industrial Star of 2012

A resounding 25% surge Thursday morning in the shares of Terex (NYSE: TEX  ) places this equipment manufacturer on the throne as this year's top performer in its space thus far.

Terex revealed outstanding second-quarter profit of $83.6 million, or $0.75 per share, and excited the market with robust guidance for earnings of about $2 per share for the full year. Even as the stock exploded back above the level where I issued my bullish recommendation in May, the share price remains at a single-digit multiple to that guidance. Accordingly, I see strong potential for Terex's stock to continue the positive momentum generated here.

The company's 2011 acquisition of crane-maker Demag played a significant role in generating the lion's share of Terex's 35% increase in net sales. But even excluding Demag for a more instructive comparison, net sales grew a respectable 11% during a quarter that presented difficult economic conditions in several key markets. Net sales from aerial work platforms surged by 25% as rental providers updated their fleets in North America, and Australian construction demand remained strong. And speaking of construction, the company's construction equipment unit booked its first profitable quarter since 2008 as emerging markets scooped up Terex's compact equipment line.

Continued progress at improving margins assured that those sales increases translated effectively into bottom-line profit growth, and I think management deserves ample credit for tweaking this iconic manufacturer into a lean machine-building machine. Terex still carries a heavy debt burden after staggering through the 2008 financial crisis, but the company's cash balance of $841.5 million (42% of its market capitalization!) forms a reassuring piece of its nearly $1.3 billion liquidity position.

As the following chart will show, Thursday's dramatic surge reasserted Terex's position as the king of the equipment builders here in 2012 in terms of share performance. Mining equipment specialist Joy Global (NYSE: JOY  ) has taken it on the chin year to date, while large-cap market leaders Caterpillar (NYSE: CAT  ) and Deere (NYSE: DE  ) have slipped into negative territory.

TEX Chart

TEX data by YCharts

I'm not normally one to chase trailing outperformance, but the outlook for Terex has only improved since I issued my bullish CAPScall near the present stock price a couple of months back, and that has me looking for a share price in the mid-$20s before I'll even consider closing my pick. Please make your own pick regarding Terex or one of its equipment-making kin by clicking on a link below, and please stand by for further coverage of the space by bookmarking my article list or following me on Twitter.

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. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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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.

  • Report this Comment On July 27, 2012, at 8:50 AM, BDF958 wrote:

    Too much MOnday morning quarterbacking!!

    I bought Terex as part of the, i forget what you called it, the Millionaire club wheresupposidely you put your own money in the fund and watched Terex, lose 75% of its value. So bascially this stock was so in the toilet that their were three possiblities. 1) it would come back, 2) it would go under and 3) would get bought by , I don't know, say CAt or Deere.

    OK, so they were up, and now every one jumps on the bandwagon and its an all time winner!

    That is the fundamental problem today, systemic and having to do with instant this and that, human factors, mainly greed and fear, and information, or shoud I say missinformation overload.

    But just do not tell me how you recommended Terex at the bottom, because you also advised to sell it at the bottom in an anther service. Enough services, and you are bound to get something right some of the time right?

    Basically, while everyone is telling you buy and hold is dead, buy and hold is the only thing that has a chance of working, but not for the advisers or those who make money off you transactions, including apparently MFool.

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Related Tickers

10/21/2016 4:02 PM
TEX $24.76 Up +0.23 +0.94%
Terex CAPS Rating: *****
CAT $86.33 Down -0.30 -0.35%
Caterpillar CAPS Rating: ***
DE $86.43 Up +0.32 +0.37%
John Deere CAPS Rating: ***
JOY $27.89 Up +0.02 +0.07%
Joy Global CAPS Rating: ****