Joy Global (JOY) is expected to report fiscal 2Q earnings on June 2 in the morning. I always like watching JOY's second quarter report, as it sets the stage for cyclical sentiment into the summer.
I do not expect any surprises, either. Things in their markets, globally, are bad. JOY's business continues to be impacted by materially reduced capital spending in areas like coal and mining for industrial metals.
We heard from John Deere (DE) and others recently that used equipment inventory remains high globally. Regarding JOY's largest resource market, coal, usage of it and the corresponding infrastructure spend is clearly in secular decline in the developed world.
Even still, JOY shares have had a brisk recovery from this year's lows, when the company touched a 52-week low of $8.35. Since then, the stock has more than doubled. JOY had already slashed earnings guidance and the dividend at the end of last year.
During the company's first quarter report, investors cheered stabilization in backlog, a basic reiteration of dismal cyclical-low guidance. Massive short covering likely contributed to the stock's rip.
Important to note, however, that JOY's tangible book value is around $8.00 per share. Buying a solid (and profitable) franchise, like JOY, near tangible book is a crystal-clear buy signal for the value-types that are paying attention. Set your alerts for such levels in a few of your beloved cyclical stocks.
I like JOY's franchise in aftermarket parts and services. This can act as an earnings stabilizer, similar to National Oilwell Varco (NOV) and others. JOY's management is doing the best they can to reduce footprint, maintain share and hold profitability during this most difficult cyclical period in their markets.
I have a more difficult time with JOY's exposure to coal, and would rather focus on energy and industrial metals with the potential to enjoy some level of cyclical recovery in time.
JOY's stock, to me, appears range bound. I'd look for a retest of recent lows to invest in the company's franchise. However, I am not sure the market will give us that type of opportunity in the near-term.