No banks imploded in the last several days, and there are rumors that the folks in Washington are making progress on a debt deal. Plus, we think the Fed may just pause for a bit, if not be done hiking rates. In short, it’s another week where I’m leaning cautiously optimistic – especially on stocks like Terex Corp. (TEX), summarizes Tyler Laundon, editor of Cabot Small-Cap Confidential.

The broad market is inching higher. So far, though, the small-cap index is being left behind. That’s because of the high weight of financials and energy, and those two sectors look terrible in small-cap land.

The thing is, the poor small-cap performance at the index level is masking the constructive behavior of many growth-oriented, small-cap stocks. That stinks when it comes to drumming up new interest in our asset class. But it also means we’re able to snap up shares of a lot of these stocks when nobody else is really paying attention.

Back to the broad market, the longer we go without anything really breaking the easier it is to feel better about the rest of the year. I’m not thinking we’re out of the recession woods just yet. But the rolling recession theory, which is far less painful for the market, continues to make the most sense.

The longer we move forward without slipping back, the closer we get to an economy where more things are working, which would be good for the stock market. “Cautiously optimistic” may be an overused term, but it really is the best way to summarize things based on what I see happening in our portfolio and with stocks of companies that I’m interested in adding.

Terex Corp. (TEX)
A picture containing screenshot, plot, diagram  Description automatically generated

As for Terex, it has come up off recent lows near the stock’s 200-day line in the couple of weeks since reporting Q1 results that beat expectations. Revenue was up 23% and full-year revenue guidance was increased by more than the Q1 beat to a range of $4.8 - $5.0 billion. EPS guidance was also raised (by a full dollar) to a range of $5.60 - $6.00.

The current debate on the stock is just how far we are in the machinery cycle. By some measures, we may be getting a tad late. But then there is an expected ramp in public sector spending and commercial construction as businesses come back to the U.S. from overseas, not to mention stimulus spending (IRA, CHIPS Act). Also, TEX has a decent aggregates business that is less cyclical than the aerial lifts side.

Recommended Action: Buy TEX

Subscribe to Cabot Small-Cap Confidential here...