Joy Global: Waiting for Hedge Funds to Finish Dumping

Thanks to a reader for pointing out this Joy Global (JOYG) news. My first thought was "yeh but are hedge funds done selling it?" - that's how bad this market has become. News has not mattered. Now again, stock buybacks don't mean anything unless they are followed up on - many companies "announce the setting aside of money for buybacks" but never follow up. But this one appears to be "real", and takes out $1B of a $5B company by the end of 2008. That means earnings PER share increases by 1/5th (does that matter in this market? Who knows anymore) This is exactly why we bought Alliance Data Systems (ADS) - which has been steadfast in a ratty market - a huge buyback.

Joy Global Inc., which makes heavy equipment for the mining industry, said Wednesday its board increased its share repurchase program by $1 billion to $2 billion.
The board also extended the buyback plan's expiration to the end of 2011, from the end of 2008.
Joy Global, which had roughly 107.8 million shares outstanding as of Aug. 29, said it plans to buyback shares under the first $1 billion authorization before the end of the year.
But this fits into a thesis I've been pushing out the past week or two. Unlike financials which no one seems to want to buy (except pundits) these companies have real assets of value and real earnings. At some price point I expect merger and acquisition activity and/or these type of buybacks. This is quite an enormous one since it saps up so much stock, but we know Potash (POT) CEO Bill Doyle has been in there buying stock all year even at these "bubble prices".

Remember folks, these companies are still growing and many have products that are scarce... in the medium to long run (i.e. longer than 99% of hedge funds time frame I assume) population growth and industrialization does not go away. Why these stocks get 5 PE ratios when lousy American retailers get 20 PE ratios is simply marking hedge fund dominance. [Do Earnings Matter?] If you can stand the pain of potentially losing 20% in the next 24 hours when hedge funds liquidate these remain excellent buys. Or if the hedge funds simply liquidate to no end, the companies will buy back their stock like Joy Global is doing, or larger companies will start eating smaller companies. Because unlike banks full of "financial innovations" which are near worthless, these have true hard assets that are worth something in the "real world" as opposed to only in New York City and London.

This news makes me want to buy Joy Global, but I fear another rash of hedge fund selling. I don't know if they are done or not. Maybe they are. Maybe they are not. No one knows. That's the problem. But this puts Joy Global back on my radar as a potential buy in the near future. Falling steel prices should actually help, not hurt this type of company - same with petroleum products which go into so many input costs for these manufacturers. Instead the companies are all traded as if they are oil itself. Nonsensical.

For a company like Potash, I've said once their hyper growth stage is over they are going to turn into a cash cow machine - spinning off dividends left and right as I truly believe even when their new supply comes on in 2011! (not next year, not the year after) there will still be a heightened demand for potash and new higher level of prices. Not that it matters to institutional money whose time frame is "next week at the longest". But by then it might be private the way the stock is getting trashed.

Folks, right now the stock market is like a video game where fundamentals mean nothing. At some point fundamentals will again matter - but it appears not until all these levered hedge funds are unmasked and neutered. There are many companies out there with excellent businesses and high cash flows. In the end they will win. We just need to have cash available to buy them, whenever the relentless selloff and develerging is complete. For now I remain mostly on the sideline because each day brings completely random action.