Many stocks on Wall Street are not directly tied to domestic or global growth. Often, they simply demand a reasonable amount of consumption to make earnings estimates and press ahead. The machinery sector had a very mediocre 2013, which was difficult for many investors to swallow, given the S&P 500's 30% overall gain. The good news is that many of the sectors that depend on new and upgraded machinery, like the mining industry, may have bottomed.
In a new research report, the analysts at Deutsche Bank start coverage on some of the top machinery names on Wall Street. They expect machinery companies with high exposure to construction/engines sector to be the primary beneficiaries, as they believe those end markets are in the early innings of a multiyear up-cycle. Although they do expect mining equipment capital expenditures to remain subdued in 2014, they see a recovery in original equipment manufacturers sales in 2015. They also project domestic agricultural machinery sales to only show a moderate decline in spending.
Here are four top machinery stocks to buy at Deutsche Bank.
Caterpillar Inc. (CAT) expects its construction and power segments to be up 5% respectively in 2014, leading to flat overall sales growth. While, a 10% decline in its resource spending isn't anything to write home about, it does imply the beginning of a bottoming out process. Especially, when considering that Caterpillar's resource industry sales declined a whopping 48% in the fourth quarter of 2013. This is central the Deutsche Bank thesis. The shareholders are paid a 2.5% dividend. The Deutsche Bank price target is $122. The Thomson/First Call estimate is $97.95. Shares closed Thursday at $96.92.
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Cummins Inc. (CMI) is one of the leading companies in the designing, manufacturing and distribution of diesel and natural gas engines and engine-related components. The company serves customers around the globe through its four operating segments: engine, components, power generation and distribution. The company should be a large benefactor in the demand for heavy-duty trucks. Investors in the company are paid a 1.7% dividend. The Deutsche Bank price target is $170, while the consensus is posted at $149.23. Cummins closed Thursday at $141.75.
Deere & Co. (DE) improved earnings per share by 9.7% in the most recent quarter, compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. Despite strong underlying results, the market has reacted with a good dose of skepticism to Deere's results. The company confirmed its cautious outlook for 2014 and reiterated that it expects worldwide net sales in Agriculture & Turf to decline by 6% in 2014, while net sales in Construction & Forestry should increase by 10%. Investors are paid a 2.4% dividend. The Deutsche Bank price target is $110, and the consensus is at a much lower $87.38. Deere closed Thursday at $85.12.
Terex Corp. (TEX) rounds out the top four machinery stocks to buy at Deutsche Bank. The company operates as an equipment manufacturer of specialized machinery products. Its Aerial Work Platforms segment designs, manufactures, refurbishes, services and markets aerial work platform equipment, telehandlers, light towers, bridge inspection equipment and utility equipment, as well as related components and replacement parts, under the Terex and Genie brands. The company's Construction segment offers off-highway trucks and material handlers; loader backhoes, compaction equipment, mini and midi excavators, site dumpers, compact track loaders, skid steer loaders, wheel loaders, and tunneling equipment; and asphalt and concrete equipment, and landfill compactors. The stock is the perfect construction growth play. Investors receive a very small 0.5% dividend. The Deutsche Bank price target is $52. The consensus target is $43.44, and Terex closed Thursday at $43.25.
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All these stocks were somewhat out-of-favor last year, and certainly underperformed the overall S&P. While growth here and around the globe may come in fits and starts, the downside to the overall sector seems to be limited. With mining and agriculture sales probably at their cyclical lows, these top names to buy may offer investors a good way to participate in overall economic growth, both here and around the globe.
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