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This Stock Is Guaranteed to Bring Joy to Your Portfolio

Jason Moser
October 4, 2011

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The headlines today all read that commodities are in a crunch. Copper is getting killed, oil is as low as it's been in more than a year, and with threats of global recession, what are we going to do? I tell you what I'm gonna do: I'm adding Joy Global (Nasdaq: JOYG  ) to my Rising Star portfolio.

The company
Joy Global was technically founded in 1884 as Harnischfeger Industries. However, when Harnischfeger filed for bankruptcy in 1999, Joy Global emerged as the direct successor company with a global focus on underground mining and surface mining equipment. Today the company operates in two segments: P&H Mining Equipment (surface mining equipment) and Joy Mining Machinery (underground mining machinery).

P&H is the world's largest producer of electric mining shovels, and Joy Mining is the world's largest producer of underground mining machinery for the extraction of coal and other materials. While the company's products are used for mining a number of materials, more than two-thirds of revenues come from their coal-mining customers. Given that more than 40% of total revenue comes from outside the U.S. and Europe, I smell an opportunity of global proportions.

Oh the Joy!
The International Energy Outlook 2011 predicts that through 2035, coal consumption for Organization for Economic Co-operation and Development nations will remain essentially flat. However, non-OECD nations (like China and India) are another story; projections there are for coal consumption growth of 76%. Furthermore, from 2008 to 2035, coal is projected to account for more than one-third of total non-OECD energy consumption. Below is a graph charting estimates for non-OECD consumption by region:

India and China both continue to import more thermal and metallurgical coal as well thanks to continued development and significant infrastructure programs in both countries' next five-year plans.

Joy's recent acquisition of LeTourneau from Rowan Cos. (NYSE: RDC  ) along with additional market share gains from the strategic investment in International Mining Machinery Holdings in China should also add some fuel to the fire.

Just as emerging economies are stoking demand for coal, copper is another commodity that plays a big part in energy and infrastructure upgrades. While copper plays a smaller role in Joy's overall revenue (to the tune of about 15% annually) management believes it will continue to see double-digit growth in the near term as mining companies are realizing strong demand and prices. The table below represents the capital expenditure trends for three global mining operations over the past three years. It is also worth noting that all three have guided for increased capital expenditure spending going forward as well:





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