A Wall Street Transcript Interview with Joel G. Tiss, a Senior Research Analyst for BMO Capital Markets Equity Research Covering Machinery Stocks: Construction Equipment Management Teams Looking for Edge to Outperform Macroeconomy

Wall Street Transcript

67 WALL STREET, New York - May 5, 2014 - The Wall Street Transcript has just published its Building Materials, Residential Construction and Housing Report offering a timely review of the sector to serious investors and industry executives. This special feature contains expert industry commentary through in-depth interviews with public company CEOs, Equity Analysts and Money Managers. The full issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

Topics covered: Construction Equipment Replacement Trends - Growth in Equipment Leasing Adoption Rates - Infrastructure Build in Emerging Markets - Energy Infrastructure Companies - Infrastructure Spending - Production Rates in Capital Goods - Opportunities in Domestic Shale Infrastructure - Increased Rental Demand

Companies include: Terex Corp. (TEX), Deere & Co. (DE), AGCO Corp. (AGCO), Parker Hannifin Corporation (PH), Illinois Tool Works Inc. (ITW), Kennametal Inc. (KMT), Navistar International Corp. (NAV), Cummins Inc. (CMI), Caterpillar Inc. (CAT), WABCO Holdings Inc. (WBC), PACCAR Inc. (PCAR), Emerson Electric Co. (EMR), United Technologies Corp. (UTX)

In the following excerpt from the Building Materials, Residential Construction and Housing Report, an expert analyst discusses the outlook for the sector for investors:

TWST: What is your coverage in the construction and industrial space?

Mr. Tiss: In construction equipment I cover Terex (TEX); in farm equipment Deere (DE) and AGCO (AGCO); in general industrial companies like Parker-Hannifin (PH), ITW (ITW), Kennametal (KMT); and trucks are Navistar (NAV), Cummins (CMI), Caterpillar (CAT). I also have some miscellaneous coverage, but those are the primary names in the construction space.

TWST: What is the overarching theme for all of the companies in the construction space right now? Is there a single theme?

Mr. Tiss: The overall theme is basically everything is expensive. We have to go out to 2016 with a little bit of rosy glasses on to be able to come up with enough earnings growth to justify today's valuation. That's the overall theme. Underneath that theme, it's very, very important to try to find where the growth is coming from, whether it's a cyclical rebound or there are some structural reasons to be able to grow faster than the end markets.

TWST: Where are you seeing that growth right now? Where is it coming from?

Mr. Tiss: We've got a cyclical rebound underway in the truck industry. There are a whole range of ways to play that, all the way from Navistar, which is a company more in transition which lost a bunch of share and is now trying to gain it back, or the highest-quality companies like WABCO (WBC), which makes brakes and transmissions like safety equipment basically and equipment that helps with your fuel efficiency. That company has fabulous management.

And PACCAR (PCAR) make the highest-quality trucks, and they have a great balance sheet, great management team, and there is a family that owns 20-something percent of the company, so they run it very conservatively. So there is a cyclical rebound going on in trucks for probably somewhere fourth or fifth innings, and there are another two or three years to go I would say on that.

In construction equipment we had a really strong run from 2002 to 2006 or 2007, and then we deteriorated pretty strongly into 2008, 2009, 2010, and we are slowly coming out of that funk and starting to see some more buildings going in place, more manufacturing capacity. We are at the very stages of gaining enough momentum in nonresidential construction to start...

For more of this interview and many others visit the Wall Street Transcript - a unique service for investors and industry researchers - providing fresh commentary and insight through verbatim interviews with CEOs, portfolio managers and research analysts. This special issue is available by calling (212) 952-7433 or via The Wall Street Transcript Online.

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