5 Stocks That Could Dip on China Woes

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5 Stocks That Could Dip on China Woes Source: Pixabay

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Caterpillar Image credit: Caterpillar

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Connection with China In 2011, Caterpillar acquired Bucyrus International for $8.8 billion to expand its mining-equipment business, particularly in China. But with the global commodities boom ending soon after, Caterpillar couldn’t unlock value from what was also its largest-ever acquisition.

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The concerns going forward Caterpillar’s sales from Asia-Pacific slumped 25% in Q3 on weak demand from China. The company projects revenue from its resource industries (mining) division to fall 10% in 2016. It could fall further as tumbling iron ore prices -- down 45% year to date and 80% from their peak in 2011 -- push miners to the brink.

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Joy Global Image credit: Joy Global Inc.

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Connection with China Joy gets the bulk of its revenue from coal-mining customers. Iron ore and copper are the other key commodity markets it serves. China is the world’s largest consumer of both coal and iron ore. LTM sales Q3 2015. Source: Company presentation at Baird 2015 Industrial Conference

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The concerns going forward Joy’s original equipment orders and backlog value slumped 52% and 16%, respectively, during the nine months ended July. Joy expects to earn $1.80 per share this year. That’s only a quarter of what it earned in 2012. 2016 could be tougher as industry experts project prices of key commodities to fall further on lower consumption in China.

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Manitowoc Image credit: Manitowoc

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Connection with China Manitowoc gets 12% of its revenue from Asia-Pacific, and China is a key market. Its cranes facility in China, also one of its largest, serves the Asia-Pacific and Middle East regions. Slowdown in the nation forced Manitowoc to exit a joint venture and offload stake in another last year.

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The concerns going forward Manitowoc’s crane sales slumped 23% year over year in Q3 on lower demand from Asia. The company projects full-year crane sales to decline 15%-20%. Its sales could decline further if China’s construction sector hits projections of historical lows in the near term.

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Cummins Image credit: Cummins

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Connection with China Cummins gets 7% of its total and 46% of its joint venture sales from China. Cummins is setting up a new facility to gain foothold in the Chinese engine market. Sales from the market, however, are stagnating. Cummins’ sales from China. Source: Company’s Q3 earnings presentation

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Each of Cummins’ business segments faces risks: Engines: Truck sales in China projected to decline 30% this year Power generation: Sales of hydraulic excavators in China have slumped nearly 75% since 2010 Components: Growth driven by emission regulations. No major catalyst in the near future as China implemented the NS IV standards this year The concerns going forward

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Westport Innovations A Westport 2.4l engine. Image: Westport Innovations

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Connection with China Westport’s joint venture with China-based Weichai Power contributed nearly 57% to the company’s total segment revenues last year. The venture was also its most profitable segment in 2014.

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The concerns going forward Westport’s share of income from Weichai-Westport slumped 88% year over year in Q3 as revenue fell 81% on lower truck sales in China. Any further weakness in China is a double whammy as it’ll hurt sales of both ventures, Weichai-Westport and Cummins-Westport.

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