Market Overview

Looking to Play a Rally? Buy Joy Global

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Shares of mining equipment maker Joy Global (NYSE: JOY) are among the worst performing stocks on Wednesday, falling 11.73% to $74.62. The company released its fiscal fourth quarter earnings results this morning prior to the opening bell. On an adjusted basis, net income was up 33% to $193.7 million or $1.82 per share. This compared to analysts' consensus EPS estimates of $1.86.

Net sales were up 27.3% to $1.34 billion versus $1.05 billion in the year ago period. This also missed Wall Street expectations. Analysts had consensus revenue estimates for JOYG of $1.35 billion coming into the report. Looking ahead to fiscal 2012, the company sees EPS between $7.00 and $7.40 on revenue of $5.3 billion to $5.5 billion.

Wall Street analysts currently have fiscal 2012 EPS estimates of $7.19 per share on revenue of $5.36 billion. Joy Global's President and CEO also had some cautious comments regarding demand in 2012. He said, "We expect demand to grow at a more moderate rate in 2012, and our focus will be on long term growth and efficiencies. ….This will enable us to continue improving margins even with the pressures that will come from a slower market. ... we will continue to move ahead with our capacity upgrades and expansion plans to meet the long term needs of our customers."

So, JOYG missed earnings and revenue estimates and the CEO said that he sees lower demand in 2012...Why buy the stock? Joy Global might make a lot of sense for traders looking to play a quick bounce in the stock market heading into the end of the week. The reason is because the name and the overall market are both quite oversold on a near-term basis.

JOYG shares have fallen almost 17% in just the last three days. Today's earnings report could end up being a crescendo in near-term negative sentiment surrounding the name. Furthermore, the price of JOYG shares is very sensitive to the outlook for the global economy.

If near-term sentiment in JOYG is hitting a tipping point, and the market retraces some of this week's losses on Thursday and Friday, this name could pop. This is a speculative idea, so traders should put in a tight stop if entering the name on the long side. The $74 level would be a natural area to stop out of the trade. Also, JOYG has broken a near-term support level this week, so any bounce may be short-lived. Therefore, the timeframe for this trade should only be a couple of days at most.

ACTION ITEMS:

Bullish:
Traders who believe that the overall market will bounce into the end of the week might want to consider the following trades:

  • Buying economically sensitive basic material stocks such as Joy Global (NYSE: JOYG) or Freeport-McMoran (NYSE: FCX)
  • Buying a commodity ETF such as the SPDR S&P Metals and Mining ETF (NYSE: XME).
  • Buying call options on a market tracking ETF such as the SPDR S&P 500 ETF (NYSE: SPY).

Bearish:
Traders who believe that the sell-off will continue may consider alternate positions:

  • Shorting economically sensitive commodities such as copper and silver.
  • Buying put options on volatile basic materials stocks such as FCX and JOYG.
  • Purchasing securities that will benefit from a continued rise in the U.S. Dollar.

Neither Benzinga nor its staff recommend that you buy, sell, or hold any security. We do not offer investment advice, personalized or otherwise. Benzinga recommends that you conduct your own due diligence and consult a certified financial professional for personalized advice about your financial situation.

Posted-In: Earnings Long Ideas News Guidance Intraday Update Movers Trading Ideas Best of Benzinga

 

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