5 Stocks That Could Dip on China Woes

Source: Pixabay

Caterpillar

Image credit: Caterpillar

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.

The concerns going forwardCaterpillar’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.

Joy Global

Image credit: Joy Global Inc.

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

The concerns going forwardJoy’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.

Manitowoc

Image credit: Manitowoc

Connection with ChinaManitowoc 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.

The concerns going forwardManitowoc’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.

Cummins

Image credit: Cummins

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

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 2010Components: 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

Westport Innovations

A Westport 2.4l engine. Image: Westport Innovations

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.

The concerns going forwardWestport’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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