Can These Stocks Bounce Back?
However hard the market slams a stock, there's always the chance it'll come bouncing right back. We'll consult our Motley Fool CAPS community to find shares on the rebound, examining one specific sector of the economy in search of companies with rising CAPS ratings.
There are 172 stocks listed under "industrials" in the CAPS' screener, of which many carry well-respected four- and five-star ratings. Those accolades mean our 180,000 CAPS members are confident that these stocks will beat the market in the months ahead, but let's see what members are saying about the ones below:
CAPS Rating Today (out of 5)
52-Week Price Change
Estimated 5-Year Growth Rate
|Caterpillar (NYS: CAT)||****||$94.85||1%||23%|
|Cummins (NYS: CMI)||*****||$92.30||(16%)||18%|
Source: Motley Fool CAPS.
International and financial worries are again gripping the market, but even with the S&P 500 virtually unchanged over the past 12 months, it may not be surprising to learn that with a weak economy the CAPS industrial stocks fared worse, losing 14% in that same time span. So let's take a closer look at why investors think some of these other companies won't be jumping from the frying pan into the fire now that the markets are roiled again.
If you build it, investors will come
Famed free-market economist Milton Friedman once intoned, "We're all Keynesians now" -- as everyone rushed pell-mell to embrace government spending as a means getting the economy unstuck. China's central planners apparently are every bit as Keynesian as their international counterparts, believing they can spend their way out of the global recession by priming the pump in key economic sectors, particularly those that will encourage consumption.
Although it makes for lousy policy, a spending boom can lead to renewed construction projects, which is likely to help Caterpillar, the world's largest heavy-machinery manufacturer. It's already betting on China to help it grow, as it represents its single largest market. It expects the industry to expand by 10% there this year, although some economists see it pulling back to 2010 levels. Deere (NYS: DE) is similarly anticipating a boom and expects production at its new Chinese facilities to begin in 2013.
It was Caterpillar's acquisition of Bucyrus last year that really solidified the importance of Asia to its future. The mining-equipment maker will enable it to better go after the burgeoning mining sectors on the same footing as Joy Global (NYS: JOY) .
CAPS member Monroe7 understands the risks associated with a global slowdown but believes Caterpillar is a solid investment nevertheless: "Solid company, there is alot of fear about the global economy pushing the price down, but it has a good dividend and projected earnings for next year make this stock extremely cheap, a good company to hang on for the long term as well."
Revving its engines
You may as well add engine maker Cummins to the Chinese hit parade, too. It is expanding in both China and India to take advantage of the emerging economies there. China alone represents Cummins' second-largest market after the United States, and the company expects sales from China to hit $3.7 billion this year, or around 20% of its total revenue.
The mining sector that Caterpillar is digging into is giving Cummins traction, too. Greater Chinese mining activity contributed to a 36% increase in Cummins' total sales. It's just not as confident the construction sector will be as robust as Caterpillar says. After all, Terex (NYS: TEX) saw crane sales tumble there last quarter as demand weakened.
That plays a part in why CAPS member chk2595 thinks that when it comes to beating the Street, Cummins won't be able to do it just yet.
Recovery still not here and capital spending on hold for a while. While truck and tractor fleet is aging, not ready to replace all of it. This solid company will be in slow recovery as it is now over priced.
The ball's in your court
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At the time this article was published Fool contributorRich Dupreyholds no position in any company mentioned. Check out hisholdings and a short bio.Motley Fool newsletter serviceshave recommended buying shares of Cummins. Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.
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