Terex: "Get Your Hands Dirty"

09/26/2017 5:00 am EST


Michael Cintolo

Vice President of Investments and Chief Analyst, Cabot Heritage Corporation

Terex (TEX) is a get-your-hands-dirty kind of stock—it’s a leading producer of all sorts of heavy construction equipment, ranging from boom lifts to excavators to cranes to pavers, says Mike Cintolo, editor of Cabot Top Ten Trader.

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Naturally, the business has historically been extremely cyclical, with the global economic environment having an outsized impact on the firm’s bottom line.

The economy is still a big factor, of course—the firm’s total backlog is up 36% from a year ago, with strength across all segments.

But the big idea here is Terex’s multi-year effort to improve its own operations, which management (and at least one big hedge fund manager) believes could cause cash flow to mushroom in the years ahead.


Terex has been busy selling off non-core businesses (including its Indian and U.K. backhoe businesses, as well as shares of a British crane operation it owned at stake in) and paying down debt (its long-term debt fell from $1.5 billion to less than $1 billion in the first six months of the year).

The company has also been buying back shares (the share count is down around 20% from a year ago!) and putting in place numerous operational improvements.

The turnaround is just beginning, but the stock is strong because big investors think the writing is on the wall for a prosperous few years.

The top brass believes Terex’s return on invested capital can rise from 6% today to 20% in 2020, and a top fund manager believes the company can earn nearly $8 per share that year, up from $1 or so this year.

It’s an intriguing story. TEX bottomed with most industrial stocks in early 2016 and got another lift after last November’s election, topping out near 34 late last year.

Shares meandered mostly sideways through May, but have begun to trend higher since then. Even better, shares formed a tight shelf after hitting $40 in early August, but in recent days, has surged to new highs on string of high-volume days. We’re OK buying here or on dips, with a stop in the upper $30s.

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