Stocks in the Manufacturing & Industry sector tend to be more volatile than those in the Finance, Utilities and Consumer sectors. That’s because demand for their products moves up and down with the economy.
To cut your risk in the Manufacturing sector, we believe it’s best to stick with well-established firms.
Below we report on a stock in this sector that we cover regularly in The Successful Investor. The company is a leader in its niche market, and also has a long history of paying dividends.
FINNING INTERNATIONAL INC. (Toronto symbol FTT; www.finning.com) rents, sells and services heavy equipment made by U.S.-based Caterpillar Inc. (New York symbol CAT). Its main customers are in the oil, mining, forest products and construction industries.
Canada supplies 50% of Finning’s revenue, followed by South America (37%) and the U.K. (13%).
Lower prices for copper and other commodities have weakened equipment demand, particularly in South America and the U.K. However, Canadian sales remain strong. Weak commodity prices are also prompting Finning’s customers to rent more equipment and buy used machinery. As well, they are spending more to make their current gear last longer.
Investing in stocks: Orders for new equipment rise 11% in latest quarter
Finning’s overall sales rose 11.7% in the three months ended September 30, 2013, to $1.8 billion from $1.6 billion a year earlier. Sales of new equipment (which account for 44% of its total sales) rose 7.5%; rental revenue (6%) rose 8.1%; and sales of used gear (5%) jumped 44.9%.
Sales of maintenance and support services (45%) rose 13.5%. Half of that gain is from assets Finning bought from Bucyrus International, a maker of mining and oil sands equipment. In May 2012, Finning purchased Bucyrus’s distribution and support businesses in South America and the U.K. for $305.8 million U.S. In October 2012, Finning added Bucyrus’s Canadian business for $159.2 million.
Earnings rose 6.2%, to $86.2 million, or $0.50 a share, from $81.2 million, or $0.47, a year earlier.
As of September 30, 2013, Finning’s order backlog was $1.0 billion, down from $1.1 billion three months earlier.
The company completed some large orders during the quarter, but orders for new equipment rose 11% thanks to strong demand from clients outside the mining industry.
The stock is up 22.7% from its low of $20.37 in August 2013. The $0.61 dividend yields 2.4%.
In the latest edition of The Successful Investor, we look at Finning’s long-term debt and cash reserves. We also consider the company’s earnings forecast and whether the shares can keep rising. We conclude with our clear buy-sell-hold advice on the stock.
(Note: If you are a current subscriber to The Successful Investor, please click here to view Pat’s recommendation in the latest issue. Be sure to log in first.)
If you’re a member of Pat’s Inner Circle and you’d like to ask a question about today’s article, please go to the question page reserved for you (be sure you’re logged in first). Click here to ask your question.
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