Out Fox The $treet

All year long, the monthly Architecture Billing Index, or ABI, has suggested that the non-residential construction market would boom in the next year. So far, the actual gains haven't showed up -- but that may only be a matter of time. Whether difficulty in obtaining project financing is slowing down the actual construction, or a lack of confidence in the U.S. government is giving potential builders pause, the ABI work will eventually occur. The companies that will benefit from a boom in non-residential construction will naturally be construction equipment manufacturers and equipment rental firms. Based on recently released results, United Rentals ( NYSE: URI     ) is already seeing a boom as construction firms look to rent more in a shaky business environment. Read the full article here . Disclosure: No positions mentioned. Please review the disclaimer page for more details. 

Small-Cap Insight A year after originally writing about the key margin improvements expected at Terex Corporation ( TEX ) , the amounts are still a future expectation. In fact, back in 2009 the company originally presented the expectations that operating margins would increase to 12% by 2013. The number though still languishes around 6% on a yearly basis. The company remains a leader in the manufacturer of machinery and industrial equipment focused on aerial work platforms ( AWP ), construction, cranes, material handling and port solutions (MHPS), and materials processing segments. Read the full article at Seeking Alpha. Disclosure: No positions mentioned. Please review the disclaimer page for more details. 

The recent results of United Rentals (NYSE: URI ) don’t bode well for the results of equipment manufactures such as Terex (NYSE: TEX ) or Manitowoc (NYSE: MTW ) . United Rentals claims the largest equipment rental company in the world, operating 824 rental locations in North America. The company reported results that again smashed estimates, sending the stock soaring 10% higher for the initial day of trading after the report. The limited more » Disclosure: No positions mentioned. Please review the disclaimer page for more details. 

Manitowoc Company Inc. (MTW) closed out last week trading at the 6-month high levels of $15. While the market envisions the company as a crane manufacturer that competes with Terex Corporation (TEX) , it currently obtains higher operating income from the food service division. The company currently has a mark cap of $2B and only trades at 5x the trailing twelve months EBITDA of nearly $400M. With limited operating margins in the crane division, the company has yet to see any rebound from the global financial crisis. The company faces similar margin issues as Terex in comparison to a mega-cap like Caterpillar (CAT) . In the last few months, a shift is occurring as stocks focused more on construction equipment have performed better than ones with mining exposure. Read the full article at Seeking Alpha. Disclosure: Long MTW and TEX. Please review the disclaimer page for more details. 

The poor man's Caterpillar Inc. (CAT) appears to have finally turned the corner. Terex Corporation (TEX) continues to report solid margin expansion even with limited sales growth. In the past, the company routinely reported substantially lower margins than the market leader even in high growth periods. The company is a diversified global manufacturer focused on aerial work platforms, construction, cranes, material handling and port solutions, and materials processing. While investors might have been disappointed with lower than expected sales during Q3, the more important number remains the solid margin expansion. Generating free cash flow and improving the balance sheet is more important than growing revenue. Read the full article at Seeking Alpha. Disclosure: Long TEX and MTW. Please review the disclaimer page for more details. 

Though a lot of focus exists over the copper inventories in China, the LME inventories continue heading south toward the lows in 2007/8. Ultimately this has to be very bullish for copper and construction stocks. Especially considering North America is just now heading into the heavy construction period. The market has been so focused on the Chinese story regarding copper that it has completely ignored that the US is a dominant player in the demand story. At some point we're still expecting a strong US rebound by 2013 and China to continue with strong growth. The market is not prepared for both of the 2 largest users to be strong at the same time. Below is the 5 year chart from kitco.com. As the chart shows, inventory levels haven't been this low since the last bull construction market in the US. Now though, levels are heading that way before construction has even become strong. Naturally copper stocks such as Freeport McMoRan (FCX) will benefit the most, but constru...

This model gained a solid 21.4% in February versus 4.1% for the benchmark S&P 500. This model typical outpaces the major indices by a large margin in up periods and last month was no exception. Since the end of 2011, this model has been running on the theme that the majority of stocks would retrace the losses experienced since the July 2011 levels. In essence, our theory all along has been any losses since that time period were from irrational fear of a second financial collapse that the Europeans were unlikely to allow. Naturally this fluctuates on a case by case basis where any individual stock could move a lot higher or lower depending on circumstances since then. This conviction has allowed us to hold onto a highly leveraged portfolio and see significant gains this year as stocks like Apple (AAPL) , Dicks Sporting Goods (DKS) , Liz Claiborne (LIZ) , and Radware (RDWR) all reached those July levels by February. Other stocks like Manitowoc (MTW), Sears Hold...

After a bad 2011, this year got off to a fantastic start with the model seeing a 25% gain in January easily outperforming the 4.4% gain for the S&P500. The model spent most of the month accumulating cheap stocks in order to take advantage of the market rallying against the proverbial 'wall of worry'. January was an interesting month with stocks rising even in the face of what appeared like continued negative news out of Europe. With the continued focus on Greece, most investors stayed out of the stock market and missed that yields on Italian and Spanish bonds saw dramatic declines. The ability to isolate the problems to Greece and Portugal to a lessor extent were a big relief to a market pricing in a European blowup in December. In addition, the decline in emerging markets inflation was a big benefit to the under performing stock class in the new year. Specifically fast growing countries like China and India saw multi year lows in inflation rates allowing monetary polic...

After a strong 2009 and 2010, 2011 was a year to forget for this portfolio. The market hit highs around the end of April and this model was soaring to new heights at the time. Many of the holdings had valuations nowhere near the 2007/08 peaks or even close to what would normally be considered rich. Regardless, leverage was reduced since some gains were significant. Then, unfortunately most of the stocks collapsed and even in a few cases approached 2009 lows. With too much leverage left, the model was hit very hard. The good news is that valuations started the year as attractive as during the financial collapse of 2009. 2012 Outlook Portfolio Construction The portfolio remains overweight on the global growth theme. Most of the stocks in this sector trade as if emerging markets are headed towards a recession instead of continued growth. The biggest challenge to our investment strategy in 2011 was the major inflation fears in emerging markets like China, India, and Brazil. As 201...

Back in July of last year, I did a series of articles about companies with relatively cheap valuations that were expecting the fastest earnings growth in 2012 (See 1, 2, 3, 4). These companies offered the potential for huge stock gains if earnings estimates were met. Unfortunately, just as I wrote those articles the global economy went into a tailspin due to the European debt crisis and stock prices collapsed along with the earnings estimates of the majority of those stocks Now as global stock markets appear ready to head upwards, it seemed like a good time to revisit this list. It is always a good idea to check the outcome of a previous concept. How did the stocks perform? Were earnings estimates met? What about the valuation now? Read full article on Seeking Alpha. Disclosure: Long CRZO, MTW, and TEX. Please review the disclaimer page for more details.

October was an exceptional month with a 47.9% gain versus the 10.8% gain for the benchmark leading to a 37.1% outperformance. Unfortunately, this was only a small recovery from the July, August and September selloff. With many stocks in the model still trading far below the July highs, substantial upside remains just to recapture those levels. Though global GDP growth came under pressure during the summer and fall months, US corporations are reporting record profits. The yield curve remains very positive suggesting an attractive environment exists for equities. On a daily basis, it's becoming more apparent that the summer swoon was more of investor panic than a economic reason suggesting a return to even the April and May highs of 1,370 on the S&P 500 is probably warranted. China remains a key focus of the model. While investments in China based stocks have been greatly reduced, the model still relies heavily on the demand for materials and construction related items coming...

On Saturday, Dow (DOW) and Saudi Aramco signed the Joint Venture agreement to create Sadara Chemical company. Sadara will be a $20B project comprised of 26 manufacturing untis, several of which constitute "mega projects". The complex will be one of the largest integrated chemical facilities and the largest ever built in one single phase.  The plan is for the facility to take advantage of the cheap feedstock from Aramco and combine that with DOWs chemical expertise. Also, it will take advantage of cheap labor in Saudia Arabia.  This project was originally discussed in 2007, but eventually delayed due to the financial crisis.  It should be a boon for Engineering & Construction companies such as Flour (FLR) and possibly other like Jacob's Engineering (JEC) and Foster Wheeler (FWLT). FLR already has $1.9B contract for connecting all the utilities for the complex, but all companies in the sector will benefit as the project soaks up industry capacity.  ...

Not only were materials weak, but anything to do with global growth such as infrastructure hit a wall today even with the market up .5%. Oddly utilities and consumer discretionary had a strong day. FirstEnergy (FE) in the Net Payout Yields (NPY) model closed right at the 52 week highs hit in mid May. Amazon (AMZN) soared 5.5% after closing at a new 52 week high yesterday. It has now bounced from below $180 in mid August to nearly $240 now. Global growth stocks such as materials, infrastructure, and emerging market stocks were very weak today.  Coal, copper, and crane stocks were smashed even with global markets up. What is this telling us? Maybe that global destruction is off the table, but global growth is still a concern. Investors appear headed for high dividend paying stocks as the NPY model was up nearly 1% while the Opportunistic model stocks were relatively flat. Have treasuries finally hit bottom now that a Lehman type collapse for Greece appears off the table? Sure b...

Incredible negative action in Manitowoc (MTW) after earnings Tuesday night. The stock dropped from $16 on Monday to $13 around the opening on Friday. Of course, the market was very weak contributing to the drop, but it was amazing to see the level of selloff in this particular stock. MTW is a leading crane maker and competes with Terex (TEX) among other companies. What really amazes this investor is that TEX had recently reported strong sales and weak profits leading any skilled investor to know the playbook for MTW. In fact, MTW actually reported stronger cranes numbers than TEX making any serious investor dizzy seeing MTW plummet. Luckily Stone Fox Capital unloaded MTW in the $15.8x range last Friday noting the stock was technically falling apart. Not to mention it had a gap around $14 in the charts suggesting the stock might fall substantially. Unfortunately we weren't able to return to the position in the low $13s this morning. The stock will be on are radar next week thoug...

May was a very rough month for the Opportunistic Levered model. It severely underperformed the market as China specifically and emerging growth stocks in general were hit much harder than the overall market. This trend will likely continue into June, but eventually will provide great upside potential as most of the stocks in these areas remain extremely cheap. Expanded Track Record Recently the track record was expanded back to January 30, 2009 adding a little over a year to the previous record. As one can see, the model can be very volatile, but the end result has been very good for anybody that remains invested. Sometimes an investor has to accept wild price swings in order to make long term gains. It is not uncommon for top stocks to drop more than 25% before eventually rebounding to higher prices. At times it can be worthwhile to cash out to avoid losses such as the recent sell of Limelight Networks (LLNW). The sell limited losses without incurring material capital gains impacts...

The worldwide crane market was crushed during the financial crisis and still hadn't recovered as 2010 ended, even though several industrial and mining equipment manufacturers have already recovered to pre financial crisis levels such as Caterpillar ( CAT ), Joy Global ( JOYG ) and Bucyrus ( BUCY ). Fortunately for U.S.-based crane makers, Q1 2011 saw a surge in orders and finally signals of a market recovery. Both Manitowoc ( MTW ) and Terex ( TEX ) saw huge backlog increases in the crane segment. MTW had a nearly 40% increase in backlog to $800M from the $572M reported at December 31st. TEX had a 30% increase in backlog and like MTW saw plenty of demand in North America. The total went from $774M to $1,004M. Read the full article at Seeking Alpha . Disclosure: Long TEX in client and personal accounts. Please read the disclaimer page. 

While I've been a fan of how the CEO of Massey Energy ( MEE ) has handled the investigation of the Upper Big Branch ( UBB ), it does appear that his leadership places the company to direct odds with MHSA. Mr. Blankenship has done a great job of showing that government ventilation plans may have been the cause of the UBB explosion. Rolling over and taking all responsibility didn't work so well for BP in the Macondo explosion and oil leak. According to the WSJ it appears that he BOD is willing to vote agains the long time leader of MEE. Typically this doesn't happen as the CEO usually controls the BOD like pawns. If true, MEE is likely to be sold in the near term for a nice premium. Sure the stock has run lately, but it's also below the March high. The WSJ speculates that Mr. Blakenship might be the only vote against a deal. He appears to be arguing that MEE will be more valuable when the company emerges from their recent problems. Maybe so, but the time value of mone...

More reports over the weekend of companies lining up to bid on Massey Energy (MEE). MEE has reportedly been on the auction block for a month now with rampart reports from Alpha Natural Resources (ANR) buying the company to Coal India buying a mine. Neither make much sense considering the size of ANR and lack of benefit to MEE from selling just one mine. MEE has been struggling under higher scrutiny and regulation since the explosion at the Upper Big Branch (UBB) mine back in April. The benefit to suitors is that MEE has the largest reserves of met coal needed for the production of steel in the US. With reserves of roughly 1.3B plus another healthy 1.5B of thermal coal, MEE offers a plethora of valuable assets to potential suitors, Considering the combination of management under attack and valuable assets, its no surprise that the acquisition news is heating up. Over the weekend, the WSJ leaked news that ArcelorMittal (MT) had been reviewing a bid for MEE for months now. MT as a sui...

After the bell on the 20th, Terex (TEX) reported earnings that showed an improvement in all divisions except for Cranes. Unfortunately for TEX, Cranes is the largest and most important division though it's impact has been significantly reduced this year as sales bounce back in Aeriel Work Platforms (AWP), Materials Processing (MP), and Construction . The results were a slight disappointment mainly due to unexpected order cancellations and pushouts in Europe. Based on the results from Manitowoc (MTW) reported earlier this month, it wasn't too surprising that Crane sales were weak. TEX saw a nice improvement in backlog even including a 2% sequential increase in Cranes. All in all with rental companies such as United Rentals (URI) reporting high utilization rates and the ABI turning positive it appears that the weak division in the TEX portfolio will finally turn around in 2011. Another positive sign is that TEX is finally moving aggressively into developing markets. They are ...

The Architecture Billings Index (ABI) has been one of the weakest indexes to recover from the recession. The index measures the work of architects on non-residential construction projects and usually signals work in the next 9 to 12 months. The September Architecture Billings Index was up 2.2 points to 50.4, marking the fourth consecutive month of increases, the American Institute of Architects said. Finally suggesting a recovery in the very weak construction area. Also encouraging was that the project inquiries index hit 62.3, the highest level since 2007.  Apparently the US finally sees a recovery in construction activity early next year. This will help companies like Terex (TEX), Manitowoc (MTW), and Ingersoll-Rand (IR) which haven't benefited as much from the gains in industrial spending.  From Reuters : "The strong upturn in design activity in the commercial and industrial sector certainly suggests that this upturn can possibly be sustained," said Kermit Ba...