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Gordon Johnson: Start Shorting Joy Global

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Gordon Johnson: Start Shorting Joy Global

Axiom Capital analyst Gordon Johnson thinks it's time to start shorting Joy Global Inc. (NYSE: JOY).

Johnson, appearing on Wednesday's PreMarket Prep, said the industrial stock "has gotten ahead of itself," and he expects the company will cut guidance during Thursday's Q1 earnings report.

This is despite the fact that the stock is up over 50 percent since January 20, but Johnson attributed that to expectations of stimulus help from the Fed and China rather than fundamentals, which is where the danger lies.

"If you look at the fundamentals of Joy's key markets, all the commodities that affect their key markets are down since they gave guidance of last year," said Johnson. "We think they're going to have to cut numbers, and we think now's a good time to short the stock."

Johnson expects Joy Global's revenue to come in at the low end of the $2.4-$2.6 billion Wall Street estimate. He also disagrees on the Street's expectations of a slight improvement in margins, saying they'll come in flat to down.

Joy Global traded at $12.89 on Wednesday morning, down 3.6 percent on the day.

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Commodity Downcycle Will Hurt Caterpillar

Johnson also discussed Caterpillar Inc. (NYSE: CAT), which he sees a downside in due to its indirect exposure to China.

"We think that the Chinese currency is going to continue to devalue as the government raises money to try and solve their debt problem," he said. "If the Chinese currency falls, we think commodity prices are going to fall. If that happens we think it's going to be very bad for commodity prices, which has negative implications for Caterpillar.

He added that his firm likes Caterpillar as an overall company, but the expected downside is more a product of its situation.

"We think Caterpillar is a great company overall, we just think Caterpillar is in a down cycle the likes we haven't seen since 1998-2000. We've been in a two decade commodity upcycle, so [a lot of today's portfolio managers] don't now what a downcycle looks like. That's why we're negative on Caterpillar and other industrial names. We think this downcycle is going to be much more robust, and long in the tooth if you will, than what a lot of people are comparing to the 2008-09 cycle."

Caterpillar traded as low as $68.20 in morning trading, before rebounding.

Want more trading ideas, analyst commentary and executive interviews? Tune in to PreMarket Prep live every morning from 8-9:30 a.m. ET here, or listen to the podcast here

Latest Ratings for JOY

DateFirmActionFromTo
Oct 2016DowngradesBuyNeutral
Sep 2016DowngradesOutperformNeutral
Jul 2016UpgradesUnderperformHold

View More Analyst Ratings for JOY
View the Latest Analyst Ratings

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