<<and if NH is turning
in its current numbers during such a downturn, you gotta imagine
that when times are booming, NH will rock>>
Mike, I agree that New Holland is a great long term investment at this
price, but this is certainly not a business in a downturn. Times are
booming now, and have been for the last three or four years. Earnings
are closer to a peak than a trough, and the fear in the sector is that
the peak is right now. Agco fell to 5 times earnings today. FIVE times!
What you need to think about with New Holland is the level of free cash
flow and the balance sheet. You know this business will make it through
the trough, and is likely to stay profitable. Also, New Holland's next
peak of earnings (if this is indeed the peak) will be higher than this
one - this is a cyclical grower. As Mike said, any growth is just gravy. You're not even paying full value for the company's mid-cycle earnings power at this price. I figure it this way. They're earning $2.50 now, and this company will earn money in a trough. Figure 50 cents to be
conservative. Average the two and you get a buck fifty of "mid cycle
earnings". If you can buy a cyclical at 12 times mid cycle earnings,
that's not investment. That's theft. But you may have to wait through a three year cycle to cash in. |
