Zacks Analyst Interview Highlights: Caterpillar, Terex and Freeport McMoRan

Zacks.com releases the latest Analyst Interview. Todays interview is with senior analyst Mario Ricchio, who discusses Caterpillar (NYSE: CAT), Terex (NYSE: TEX) and Freeport McMoRan (NYSE: FCX).

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What aspects concern you the most in [the machinery] sector?

Over the next 6-12 months, we believe the biggest potential problem area is global construction spending. Investors should realize the conditions that created the U.S. housing crisis existed in various markets outside the U.S. Excess liquidity and easy money played a pivotal role in driving housing bubbles in the U.K., Spain, France, Ireland and Australia, as well as a commercial boom in China and in certain Middle East economies. The piper must be paid.

Home prices are now falling in several cities within the U.K., China and Spain. Residential inventory is rising. Mortgage credit is scarce. Given this negative feedback loop, a global construction slowdown appears to be with us for the foreseeable future. This means fewer orders of mini-excavators, cranes, drilling machines, forklifts and front loaders, which has negative implications for construction-machinery suppliers, such as Caterpillar (NYSE: CAT) and Terex (NYSE: TEX).

Anything positive developing, that you can see?

Amid a negative global backdrop, there is a silver lining. Central bankers have gone from raising interest rates and fighting inflation to slashing rates and flooding the system with liquidity. We believe reflation measures will lead to an appreciably higher gold price. In addition, China has a large reserve of U.S. dollars, which can be tapped to stimulate domestic growth. Over the next few years, the Chinese government may end up allocating $200 billion (or more) on infrastructure spending. Copper will be a key input in the buildout.

What is your top Buy recommendation in this space presently?

Freeport McMoRan (NYSE: FCX) is a cheap way to play these positive market themes. The company is the second-largest copper producer in the world, a major gold producer with annual output at 1.4 million ounces. It also has a huge reserve base with which to expand future production. FCX holds 41 million ounces of gold and 93.2 billion pounds of copper.

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