Ode To Joy Global

It is practically an investing meme now that investors should focus on the "pick and shovel" plays for major investment themes. I suppose you can take that advice very literally in the case of Joy Global (Nasdaq:JOYG), as this leading mining equipment company is very much a pick and shovel play on ongoing theme of global commodity exploitation.

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The Quarter That Was
Although Joy Global did not have a superb quarter at first glance, the context is important. Revenue was down 3% and operating income was down about 4%, but those results were significantly better than analysts expected. With equipment orders up about 43%, the backlog up by double-digits since the beginning of the year and a second straight quarter of a book-to-bill ratio above 1, there was no shortage of reasons to be pleased with the company's quarter.

Major Trends Still Pointing the

Right Way

On top of a solid quarter, there are more than a few reasons for continued optimism about Joy Global's prospects. First of all, company management was pretty optimistic and they raised earnings guidance by a pretty meaningful extent.

Apart from management's commentary, there is plenty of corroborating evidence that Joy Global's key markets are improving. Canadian major Teck Resources (NYSE:TCK) is expanding copper and zinc operations in Peru, zinc operations in Alaska and coal production in Canada. Likewise, Vale (Nasdaq:VALE) is reporting no slow down in their efforts to exploit mining assets, and other miners like BHP Billiton (NYSE:BHP), Rio Tinto (NYSE:RTP) and CONSOL Energy (NYSE:CNX) have major capex budgets that should include new equipment.

Simply put, Joy Global is a bet on the ongoing bet on continued mining activity in coal and copper, as coal mining customers are over half of the company's revenue base and nearly all of its underground mining business, and copper is the largest segment of the company's above-ground business. Given that coal is still the fuel of choice for electricity generation and copper is still regarded as a bellweather component of economic growth, Joy Global is basically tied to two critical commodities that should expand with ongoing global economic development.

Bottom Line
Of course there are other fish in the sea -- investors who want to invest in the ongoing growth of mining equipment can certainly include companies like Bucyrus (Nasdaq:BUCY), Ingersoll-Rand (NYSE:IR) and Caterpillar (NYSE:CAT), and the latter two have the advantage of being more diversified companies. But if you are keenly interested in leveraging coal and copper mining growth in the coming years, it is hard to do better than Joy Global.

Joy Global is definitely not a stock for everybody. It is quite volatile for a mid-cap stock and the shares generally trade more on the near-term momentum in investor enthusiasm for commodity prices than any sort of fundamentals. Still, the company produces good cash flow and returns on capital in the fat years and this is definitely a stock worth remembering on those inevitable pullbacks in commodity sentiment. (For more, see The Characteristics Of A Successful Company.)

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