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Since I first discussed Bucyrus International (BUCY) here on June 22, 2009, at a price of $25.37, shares of the mining machine provider have pulled-back this spring in-sync with the retreat in commodity prices. Even so, just look on the dip as a decent time to scoop up shares. Here's why.
Look for Bucyrus to continue to benefit from the developing world's enormous infrastructure needs, as the global economic recovery progresses. Bucyrus reported better than 40% order growth in the first quarter, something that should help push revenue 20% to 25% higher in 2010, including revenue from recently acquired Terex.
Further, while there is some climate change risk depending on what happens to coal's status, investors should keep in mind that BUCY's equipment is also used to mine copper and in oil sands operations.
The First Call FY2010/FY2011 EPS estimates for BUCY are $4.01 to $5.10. Each EPS estimate looks about 5% low, according to my analysis.
Technically, as noted, Bucyrus' stock pulled back this spring amid the commodity correction, but the uptrend remains intact and should prevail.
However, I'd raise the sell/stop loss to $46 from $27 to lock-in profits on the June 2009-bought shares, in the event the global economic recovery does not progress as expected.
2010 Outlook: I view Bucyrus as a long-term play, but if investors are looking to sell BUCY within the year, it's probably best to take your profits after it rises to $58 or $59, if it fails to rise above $60.
Stock Analysis: I consider Bucyrus to be a moderate-risk stock. If an investor has already purchased the company's shares, I'd hold them. If not, I'd consider buying a 25% position in BUCY now, then buy another 25% in one month if U.S. and global economic conditions don't worsen substantially. Under any circumstance, I wouldn't buy more than 50% of my BUCY position before August 2010 and I'd put a sell/stop loss at $46.
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Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.
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