Bucyrus International's downside exposure is modest

Bucyrus was another one of those companies that was rudely treated by Wall Street with the onset of the global recession -- to say the least -- with shares hammered from a high around $80 to about $11. Rational? Hardly.

The First Call FY2009/FY2010 EPS estimates for BUCY are $3.12 to $2.01. The view from here argues that First Call FY2010 EPS estimate is likely to prove to be low.

Further, the Street expects continued softness for both new orders for mining equipment and for parts, due to cutbacks in the coal, metal, and relate mining segments. However, recent comments by a competitor suggest mining equipment orders are starting to firm, and if that's the case, BUCY, with a P/E of 10, is pretty cheap. Hence the risk/return is favorable.

Stock Analysis: Bucyrus International is a moderate-risk stock. Consider buying a 25% position in BUCY now; then buy another 25% in four months, if U.S. and global economic conditions don't worsen substantially. Under any circumstance, don't buy more than 50% of your BUCY position before October 2009. Sell/stop loss if you were to buy shares in this company: $13.

Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.