3 Top Heavy Machinery Plays
Investors are looking for stocks that going to be among the first to participate in the recovery of the economy. Some of the early signs that the light at the end of the tunnel is getting brighter is when we see heavy machinery company's grow revenue and earnings.
Let's take a look at three of the top heavy machinery companies in the world. We will start with industrial machine and heavy vehicle company Caterpillar Inc. Then we will head to the farm and look at how Deere has done lately and we can wrap things up with Titan Machinery.
Caterpillar Inc. (NYSE: CAT) manufactures and sells construction and mining equipment, diesel and natural gas engines, industrial gas turbines and diesel-electric locomotives worldwide. It big machinery for big business and it has the revenues to prove it.
Caterpillar Inc. had revenues of more than $60 billion in 2011, up 41% from the $42.5 billion in 2010. The 2010 revenue was also a healthy increase of 31% from the 2009 depressed revenue number of $32.4 billion which was 37% lower than the 2008 level due to the global recession.
Over the last several quarters, CAT has seen an excellent pattern of increasing earnings. Just as important as increasing estimates is the idea of not disappointing Wall Street. In six of the last seven quarter, CAT has topped the Zacks Consensus Estimate by an average of 18%. Those beats, however, did not translate into big moves for the stock, or at least on the day immediately following the report. The average move in the stock price was a loss of less than one quarter of one percent.
It should also be noted that CAT pays a $0.46 per share quarterly dividend. That works out to be about 1.75% yield on the stock. The company also has shown a pattern of increasing its dividend, with payment of $0.42 per quarter in 2009 increasing in July of 2010 to $0.44 per quarter and up to the current level in July of 2011. The increase in earnings, higher earnings estimates and consistent beats makes Caterpillar Inc. a Zacks #1 Rank (Strong Buy).
Deere (NYSE: DE) provides products and services primarily for agriculture and forestry worldwide. Its Agriculture and Turf segment manufactures and distributes a line of farm and turf equipment and related service parts, which include large, medium, and utility tractors, loaders, combines, corn pickers, cotton and sugarcane harvesters, and related equipment.
Deere is also one the bigger companies in the heavy machinery segment, and it's too has massive revenues. $32 billion in 2011 sales were 23% ahead of the $26 billion the company posted in 2010. The company also saw growth of 13% in 2010, due to the depressed revenues in the global recession of 2009.
Earnings growth is a different story for DE as opposed to CAT. The last three quarters have seen consecutive negative earnings growth, something investors usually don't want to see. The chart below really tells the story of why the stock is lower by more than 15% over the past year. Lower earnings almost always translates into lower stock prices.
Like CAT, DE pays a dividend of $0.46 per share, but because of the lower stock price, the yield is slightly higher at 2.25%. The company also has a history of increasing the dividend, but not with a discernible pattern. Deere paid quarterly dividends of $0.28 for eight quarters before bumping it up to $0.30 in 2010 for two quarters and then to $0.35 for two more quarters. The three previous quarters saw a dividend of $0.41 per share. While Deere has not reported below the Zacks Consensus Estimate, it has seen lower earnings and lower earnings estimates. This has contributed to the Zacks #3 Rank (Hold).
Unlike its much larger counterparts, TITN saw revenue growth despite the global recession in 2009. That should make some take notice, but the story keeps getting better as its growth rate has increased in each of the last three years. Revenues are still relatively low in comparison at $1.6 billion for 2011, but that was 52% ahead of the 2010 level of $1.1 billion.
The earnings picture for TITN is a little different than what we saw in CAT and in DE. With the last two quarters showing impressive growth, the consistency aspect that CAT has is not here. The growth however has translated into an impressive run for the stock price. Over the last six months the stock has moved higher by more than 50%, easily making it the best performer of the group.
Due to the higher earnings and the pattern of strong earnings surprises, Titan Machinery is a Zacks #1 Rank (Strong Buy).
Zacks.com is a property of Zacks Investment Research, Inc., which was formed in 1978 by Len Zacks. The company continually processes stock reports issued by 3,000 analysts from 150 brokerage firms. It monitors more than 200,000 earnings estimates, looking for changes.
Then when changes are discovered, they're applied to help assign more than 4,400 stocks into five Zacks Rank categories: #1 Strong Buy, #2 Buy, #3 Hold, #4 Sell, and #5 Strong Sell. This proprietary stock picking system; the Zacks Rank, continues to outperform the market by nearly a 3 to 1 margin. The best way to unlock the profitable stock recommendations and market insights of Zacks Investment Research is through our free daily email newsletter Profit from the Pros. In short, it's your steady flow of profitable ideas GUARANTEED to be worth your time. Get your free subscription to Profit from the Pros at: http://at.zacks.com/?id=7298
Follow us on Twitter: http://twitter.com/ZacksResearch
Join us on Facebook: http://www.facebook.com/ZacksInvestmentResearch
Zacks Investment Research is under common control with affiliated entities (including a broker-dealer and an investment adviser), which may engage in transactions involving the foregoing securities for the clients of such affiliates.
Disclaimer: Past performance does not guarantee future results. Investors should always research companies and securities before making any investments. Nothing herein should be construed as an offer or solicitation to buy or sell any security.
SOURCE Zacks Investment Research, Inc.