I thought Epiroc (OTCPK:EPOKY) was in good shape for the downturn and offered a decent return for its superior quality back in late April, but I certainly did not expect the strong rally in the shares since then – close to 30% for the local shares and close to 45% for the ADRs – as investors apparently are going all-in on the prospects for a sharp near-term rebound in mining output and infrastructure activity.
Weir (OTCPK:WEIGY) has been even stronger, while FLSmidth (OTCPK:FLIDY) and Caterpillar (CAT) are only modest laggards on a comparative basis. As far as laggards go, that would be Komatsu (OTCPK:KMTUY) and Sandvik (OTCPK:SDVKY) (OTCPK:SDVKF), though both are still up about 15% since the time of that last Epiroc article.
I continue to like Epiroc, but I can’t see the macro developments that would support such a sharp revision in sentiment and valuation. I do like Epiroc’s long-term leverage to more mining going underground, as well as its strong service-driven aftermarket business, and its leverage to digitalization/automation, but unless you believe miners are suddenly going to open the taps on capital spending, I think Epiroc is due for some retrenchment.
Read more here:
Epiroc's Valuation Already Prices A High-Quality Recovery Story
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