As evidence of the strength in the mining sector, consider a company that I brought to your attention in September and October of 2005. Joy Global (NASDAQ/JOYG) is a big success in the mining industry, and it also happens to be a major wealth creator for stockholders.
Founded in Milwaukee in 1884, this company is the ultimate store if you wanted to be a miner. This company sells everything you might need to be in the mining business, from roof supports, shuttle cars, and conveyor trains, to mining shovels and blast hole drills. If it’s related to mining, this company can get it for you.
As you know, precious metal prices are hot right now, and this means that suppliers to the mining industry are also doing well. This is always a great way to play a hot industry sector. In this case, you don’t need to actually be speculating on the commodity itself in the derivatives market; you can invest in a company that supplies the industry with its most basic needs.
Just like oil and gas service companies, when the price of the commodity goes up, so does speculation and development, and in order to do that, companies need equipment and supplies.
Recently, Joy Global reported fiscal first quarter earnings that more than doubled as revenues grew a whopping 48%.
According to the company, its revenues for its most recent quarter increased by 48% to $553 million, up from revenues of $374 million in the first quarter of the previous year. Net income grew to $60 million or $0.48 per diluted share during the quarter, up significantly from net income of $22 million, or $0.18 per diluted share, in the first quarter of fiscal 2005.
The company cited that industry conditions for almost all its customers remain “robust”. In particular, the domestic coal market (a major customer of the company) is currently experiencing strong demand and high prices. Joy Global says that in the domestic market, increasing coal production is very difficult so customers are investing heavily in new equipment and tools to extract more coal from existing sites.
In my view, there is no other way to describe Joy Global other than saying it is a great company. Not surprisingly, the broader market is beginning to feel this way as well and the stock is getting expensive. It will, however, remain expensive because of its growth prospects and the burgeoning mining sector. What a great success story!