Terex May Make Patience Pay Off

01/03/2008 12:00 am EST


Jack Adamo

Editor, Jack Adamo's Insiders Plus

Jack Adamo, editor of Jack Adamo's Insiders Plus, says shares of the equipment maker have been unfairly beaten down, and he expects them to recover soon.

Patience is a virtue. That's especially true in investing. I've been looking at Terex (NYSE: TEX) all year, but it was a little too expensive until now.

After a strong run-up to $90, the shares plummeted after Terex gave cautious guidance in its [otherwise] excellent third-quarter earnings report.

Terex makes and sells heavy equipment primarily for construction, infrastructure, mining, and road building. 62% of Terex's revenues come from outside the US While the market for construction is soft in America right now, it is booming in other parts of the world. Whatever weakness the company might endure domestically will be offset by growing markets abroad.

In fact, the company recently divewww.rted to Europe manufacturing equipment that was originally scheduled for America. With the Euro so strong (and no great gains by the greenback likely for years), European companies are eager to buy from top US manufacturers. Terex's order backlog at the end of the third quarter was 73% higher than [it was the previous year].

Terex shares, [which closed below $63 Wednesday], are down 35% from their high, and are selling for 11x 2007's expected earnings of $5.67.  Analysts expect the company to deliver $6.71 in earnings in 2008, [so it's changing hands at less than ten times 2008's estimates-Editor.] It's selling at the low end of the market's historical multiple range, and it's growing at nearly five times the market's rate.

I have only one qualm about Terex. Its CEO says he wants and expects Terex to have $12 billion in revenue by 2010. I hate that. I don't care about size; I care about profitability. But I'll have to give him the benefit of the doubt. The company's shares are up tenfold in the last five years, and from all I've read, it handles acquisitions particularly well. It cuts expenses and increases sales significantly within a year or two.

There's been recent buying in Terex shares, but I haven't touted it as an Insider play because the buying is not yet at a level I'd call compelling. However, most of the 39,000 shares recently bought for nearly $4 million were bought by one officer whose history suggests he's a good "value" buyer on dips. Also, more than half the shares were bought at prices above where the stock is now; so we're getting an even better deal than he is. Moreover, the company awards stock grants regularly, so small open-market Insider purchases mean more.

Terex is a company with a great track record and a great future. Shares have been slammed by scared, myopic investors who can't see a good buy when it's staring them in the face. If the recent sell off in the shares represents a tax-loss selling climax, the shares could rebound strongly [soon]. Terex is a buy up to $72.

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