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I have done several reviews of past picks this weekend and I hope you get a chance to look them over. While it may be helpful for me to review stock market investment ideas, the true test is whether these 'picks' will appreciate in price, or perhaps actually generate losses. Certainly the jury is out on the whole process that I follow, but I believe that I am onto something here!
I was looking through the list of top % gainers on the NASDAQ today and came across Joy Global (JOYG), a stock that I believe deserves a place on my blog. As I write, Joy is trading at $48.69, up $4.46 or 10.06% on the day. I do not own any shares nor do I have any options on this stock.
Let me run through a few of the things I like to examine to explain why I like this particular company at this particular time.
What exactly does this company do?
According to the Yahoo "Profile" on JOYG, the company
"...engages in the manufacture, servicing, and distribution of mining equipment for the extraction of coal, and other minerals and ores worldwide. It operates in two segments, Underground Mining Machinery and Surface Mining Equipment."
I like this company for an unrelated reason, it is a Wisconsin firm, and I am sure proud of some of the companies coming out of this great state. O.K., so I am a bit of a Packer Fan and a cheese-head as well :).
How did the company do in the latest quarter?
What drove the stock higher today was the announcement of 4th quarter 2006 results. Sales for the quarter ended October 28, 2006, increased 21% to $689 million, up from $568 million in the 4th quarter last year. Net income came in at $85 million or $.71/diluted share, up sharply from last year's $56 million or $.45/diluted share. Earnings beat expectations of $.66/share per Thomson First Call.
How about longer-term?
Reviewing the results from the Morningstar.com "5-Yr Restated" financials, we can see that revenue, which dropped from $1.148 billion in 2001 to $1.126 billion in 2002, has been subsequently been increasing steadily to $1.186 billion in 2003, $1.399 billion in 2004, $1.927 billion in 2005 and $2.281 billion in the trailing twelve months (TTM).
Earnings, which also dipped from $12.27/share in 2001 to a loss of $(.25)/share in 2002, turned profitable at $.16/share in 2003 and have climbed sharply to $1.20/share in 2005 and $3.13/share in the TTM.
The company also apparently initiated dividend payments at $.12/share in 2004, and have increased dividends since to $.28/share in 2005 and $.38/share in the TTM.
The company has slowly increased shares outstanding from 110 million in 2001 to 121 million in 2005, but in the TTM has reduced outstanding shares to 119 million.
Free cash flow has been positive and increasing recently with $77 million reported in 2003 increasing to $163 million in 2005 and $221 million in the TTM.
The balance sheet appears solid with $102.2 million in cash and $1.090 billion in current assets. This total of $1.192 billion in current assets, when divided by the $544.9 million in current liabilities yields a current ratio of 2.19. Generally, current ratios of 1.25 or higher are 'healthy', thus ratios over 2.0 are really quite strong imho. The company also has $456.6 million in long-term liabilities.
What about some valuation numbers?
Looking at Yahoo "Key Statistics" on Joy Global, we find that this is a large cap stock with a market capitalization of $5.77 billion. The trailing p/e is a cheap 15.59 with a forward p/e estimated (fye 29-Oct-07) at 16.51. I suspect the estimates are simply not keeping up with the 'good news'. The 5-Yr expected PEG works out to a reasonable 1.22.
The company has a Price/Sales ratio of 2.38 (TTM) according to the Fidelity.com eresearch website, which puts it ahead of the average 1.32 for the industrial group. This is at the 85th percentile of companies similar to it.
However, the company appears to be more profitable than similar companies with a Return on Equity (TTM) of 49.32%, ahead of its industry average of 22.35%. They are at the 88th percentile of their group in this regard.
Yahoo shows that there are 118.67 million shares outstanding with 118.18 million that float. Currently there are (as of 11/10/06) 3.85 million shares out short representing 3.3% of the float or 1.5 trading days of volume. This is well below my own 3 day trading volume rule. As I noted above, the company pays a small dividend yielding 1.40% going forward. The last stock split was a 3:2 split in December, 2005.
What about a chart?
Examining the "Point & Figure" chart from StockCharts.com on JOYG, we can see that this company, we can see that this company had a shar increase in price from the $17.50 range in January, 2005, to a peak of $71 in May, 2006. The stock pulled back to the $36 range in July, 2006, and now once again appears to be moving higher, having broken through short-term resistance at the $46 level. The chart looks encouraging to me and not especially over-priced or over-extended.
Summary: What do I think about this stock?
I have to confess that I like Wisconsin firms! Well, not all of them, but this is an interesting company based out of Milwaukee! They made a nice move higher based on an earnings report with solid revenue growth, solid earnings, and that beat earnings expectations. The company has been growing its bottom line for the past several years, has initiated and increased a dividend, and is reducing its outstanding shares. Free cash flow has been steadily increasing and the balance sheet looks great. Valuation-wise we have a company with a p/e in the teens and a PEG under 1.5. They are quite profitable relative to other companies in their group and the chart looks encouraging as well.
Basically, I like this stock a lot.
But I do not have permission to be buying anything, so it shall be added to my 'vocabulary' of stocks for a future purchase possibility.
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