Sunday, October 15, 2006

Another construction peak sign ?

Oshkosh Truck just announced that it is acquiring JLG for $3 billion in cash. While not anywhere as bad for shareholders as the recent takeover of Golden West, this seems like another sign of a top in the construction/housing boom.

Over the last 4 years, I have seen the name JLG practically every single day at one construction site or the other. In fact, as I am writing, there is one JLG boomlift just a couple of blocks down the street, working at a near-complete condominium project site. Here is the JLG page that may help you recall the logo.

For the same duration, I have been watching the stock, though I never found a good entry point. I did end up buying stock of another, though not as commonly spotted, construction vehicle maker - Gehl (GEHL). Having bought the stock at $15/share, I ended up selling (I needed the money!) at around $48/share in just over a year. Gehl is still a takeover target, though an expensive one.

Interestingly, there has been some open market purchase of Gehl shares recently by France's Manitou SA, which bills itself as the world's largest supplier of certain categories of lifts. Will Manitou make an outright offer down the road, as it already seems to own around 12% of the company ? Note that Manitou, though it sounds similar, is not related to US-based Manitowoc (MTW), another player in the construction equipment/vehcicles sector.

In the related mining equipment sector, the boom has been much bigger, as it was driven by the global commodities bubble. The bubble ended a few months ago, or atleast is in a deep correction, and mining equipment makers have correspondingly pulled back. For those who believe that the commodities boom is a very long term one, the recent pullback should be an opportunity to buy into a few of these. These include Bucyrus (BUCY), Joy Global (JOYG), Terex (TEX). These may become fodder for giants like Japan's Komatsu or Hitachi or even Caterpillar.

Here is the list (at Yahoo Finance) of all the major players in this sector.

In the farming equipment sector, I do own shares of Agco (AG), and shares have gained substantially over the last few months. I still see it as a takeover target, though I wouldn't recommend buying now.

One that looks extremely attractive, both from valuation and insider activity perspectives, in the above list is A.S.V (ASVI). I would recommend buying the stock now. I may open a position soon.


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