Published: February 26, 2008

Terex Corp (NYSE: TEX, $70.88) is the world's third-biggest manufacturer of aerial work platforms, cranes, mining equipment and other heavy construction products.

I know what you're probably thinking. A construction equipment company? In the middle of the worst domestic housing slump since the Great Depression? But keep in mind, residential construction only accounts for a small fraction of Terex's business; the firm has a much larger stake in mining, infrastructure, and commercial construction. Furthermore, the majority (70%) of the company's sales are generated outside the U.S. in foreign markets throughout Europe and Asia.

Of course, Terex has to battle for market share in certain segments with larger rivals like Caterpillar (NYSE: CAT) and Komatsu. But the company has nimbly moved into areas where those giants don't compete. In fact, fully two-thirds of the firm's revenues are generated by products in categories where Terex is the largest player.

Spending for government and commercial construction projects can be cyclical, but both markets are currently healthy. However, even if spending dries up, Terex is well-positioned to handle a protracted downturn. The firm has one of the broadest portfolios in the industry, with product lines ranging from concrete mixers to cranes. And even when demand slows, returns on invested capital (ROIC) are expected to remain above 15% -- they currently stand at a lofty +42%, among the industry's best.

Over the past few years, Terex has benefited from favorable operating conditions. Revenues have surged nearly +90% since 2004 and surged past $9 billion last year. Better still, that growth has been leveraged into much stronger bottom-line gains, as earnings have skyrocketed and will likely surpass $6.80 per share this year.

And thanks in large part to robust infrastructure spending in emerging markets like China and Eastern Europe, I expect the good times to continue. As of the end of 2007, Terex's five primary business segments had an order backlog totaling more than $4 billion -- a +65% increase over the same period last year. Orders for future delivery of mining products have been particularly strong, spiking +113%, and management has said that it simply can't keep pace with the soaring global demand for its cranes.

Concerns that a slowing U.S. economy might cut into the firm's aerial platform sales have battered the stock. After soaring in 2006, the shares lost a significant amount before rallying in the past month, mainly because of better than expected earnings. This pullback has left TEX trading at just 10.3 times 2008 earnings, a discount to rivals like Manitowoc (NYSE: MTW) and Deere (NYSE: DE) -- which garner multiples of 10.8 and 14.2, respectively.

Management has set a goal of $12 billion in revenues and 12% operating margins by 2010. Additionally, analysts estimate that TEX will see 21.3% earnings growth next year. All this implies this stock may return to the $80 dollar range.

Nathan Slaughter
Editor
Half-Priced Stocks

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Nathan Slaughter has developed a long and successful track record over the years by investing primarily in deeply discounted securities. He uses advanced discounted cash flow techniques, along with a host of fundamental research, to uncover quality stocks that are trading well below their actual intrinsic value.

Nathan's previous experience includes a long tenure at AXA/Equitable Advisors, where he provided comprehensive investment advisory services to small businesses and high net-worth clients. He also honed his research skills at Morgan Keegan, where he performed asset allocation, retirement planning, and consultative portfolio management services.

Several years ago Nathan switched gears and decided to devote his time exclusively to financial analysis and writing. He has since published hundreds of articles for a variety of prominent online and print publications, and he now writes exclusively for StreetAuthority.com.

Nathan's educational background includes NASD series 6, 7, 63, & 65 certifications, as well as a degree in Finance/Investment Management. He currently resides in Shreveport, LA with wife Julie and sons Aidan and Riley. 

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