Joy Global

This past week shares of JOYG has been off over 20% due to a worse than expected quarter and a broad free-fall in commodities. The move is shocking to many, but especially the CEO who expressed his displeasure on Mad Money. He acknowledged that the quarter was not as good as they wanted but Wall Street over reacted to the quarter. Backlogs at Joy Global have increased and sales were up 45%. The revenue numbers were great as well but many are concerned that the drop in commodity prices are making other fossil fuels like oil and natural gas much more attractive than coal. Coal is an extremely "dirty" energy source compared to oil and natural gas which also puts it at a disadvantage because we have seen a shift in worldwide sentiment on cleaner air and less carbon dioxide emissions.

Joy Global is not the only materials/commodity stock to take a hit this week. Freeport McMoran (FCX) and the oil service sector (OIH) were down 13% and 6% respectively this week. Commodity prices have increased greatly over the past years due to increased demand in the emerging markets especially China, but much of this demand is going and way and the companies are paying the price. This correction in markets was a little overdue because the growth rates in places like China and India were just too high to maintain. Lower commodity prices should help lower inflation pressures across the globe which is good for the Euro Zone which recently kept interest rates steady because of fears of inflation. Monetary policy at the ECB and the Fed will be more effective under conditions of tame inflation.

But can we assume that commodity prices will stay this low? Demand from the emerging markets will come back at some point which will certainly create a catalyst for these sectors. Now could be a great time to start researching these sectors for bargains, however be cautious because the next week shall prove very volatile because of what happened this week and the potential damage that Hurricane Ike may cause on the East Coast. Many are comparing it to Hurricane Andrew which caused about $25B in damage when it hit the coast in 1992. These sectors should offer some great trades in the coming weeks you just have to be patient and wait for the right entering point.