BHP Billiton Limited (ADR) (BHP), Joy Global Inc. (JOY), Caterpillar Inc. (CAT): What’s Good For Miners Now Is Bad For Mining Equipment Makers

Although Caterpillar Inc. (NYSE:CAT) is a good company, and the shares are off about 15% from their highs earlier in the year, the around 2.9% yield isn’t high enough to warrant sticking around through the current rough spot. Investors should wait for a better entry point.

Less Joy than 2012
Joy Global Inc. (NYSE:JOY), saw a bottom line decline of over 15% in its fiscal second quarter followed up by an over 5% decline in the fiscal third quarter. The biggest hit came from declining sales of underground mining equipment. And at the end of the third quarter, the company’s backlogs for both surface and underground mining equipment were down nearly 30% and over 40%, respectively, over the year ago period.

Looking longer term, the company’s internal tracking of “major projects” shows that there’s been a 40% to 50% drop in capital spending in the industries it serves. That’s bad for Joy Global Inc. (NYSE:JOY)’s outlook and led management to lower its guidance for fiscal 2013 and highlight that “improvement in the prospect list is not expected to have a significant impact on our 2014 order rate.” In other words, 2014 should be a tough year, too.

The shares are down some 20% from highs reached early in 2012 and yield around 1.4%. Like Caterpillar Inc. (NYSE:CAT), the company isn’t paying investors well enough to stick around through this rough patch. Investors should look elsewhere until new orders pick up materially.

Bad news and good news
For Caterpillar Inc. (NYSE:CAT) and Joy Global Inc. (NYSE:JOY) the equipment sales slow down is bad news. Until their end markets start to pick up, sales are going to remain hard to come by. That said, a reduction in demand for mining equipment is a good sign for miners since it indicates that supply is likely to start tapering off. Financially strong miners like BHP, which can continue to invest even through tough markets, will be the ultimate beneficiaries. However, as performance improves at companies like BHP, investors should take a second look at mining equipment makers.

The article What’s Good For Miners Now Is Bad For Mining Equipment Makers originally appeared on Fool.com is written by Reuben Brewer.

Reuben Brewer has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

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