Thinking Mining? Try Thinking Mining Equipment Instead

5 companies that provide another way to invest in the resource sector.

| More on:
The Motley Fool

If you’re intrigued by the sell-off that has gripped the S&P/TSX Materials space, there is a related area of the market that has also taken some lumps that you may be interested in as well.

The Industrials sector is home to several companies that provide the heavy equipment that the mining sector utilizes.  Though not as directly exposed, should the commodity shakedown continue, these heavy equipment related companies could present a great way to play an eventual rebound in the space.

Please welcome….

Caterpillar (NYSE:CAT) – Although U.S. based, Caterpillar’s operations are global and it is easily the most recognized of all mining equipment manufacturers.  Caterpillar generated about one-third of its 2012  revenues from the resource industry and therefore, the company is very sensitive to developments within this space.

Finning International (TSX:FTT) – Sticking with the Caterpillar motif, Finning is the world’s largest Caterpillar dealer.  If Caterpillar makes it, Finning sells it.  Finning has dealerships across Canada, the UK/Ireland, and throughout several South American countries.  The company not only benefits from Caterpillar sales, but after-market (repair) work as well.

Tormont (TSX:TIH) – Tormont is also a Cat dealer, but a more domesticated version than Finning.  Its dealerships are found in Ontario, Manitoba, Nunavut, Newfoundland, and Eastern Labrador.  This geographic concentration makes Tormont slightly less vulnerable to the global mining space than its internationally expanded peer.

Wajax (TSX:WJX) – Another distributor of heavy equipment although this one comes with a twist.  In addition to heavy equipment distribution (that doesn’t include Cat) the company operates two other businesses.  Distribution of industrial components like bearings, power transmission equipment, and hydraulics is business number two and distribution of diesel and natural gas engines to heavy equipment related industries is number three.  The company generated 43% of 2012 revenues from the resource industry as all three are in contact with this section of the market.  Wajax is strictly Canadian.

Ritchie Brothers (TSX:RBA,NYSE:RBA) – The world’s largest industrial auctioneer.  This company has been around since 1958 and leverages a physical and online international presence to conduct unreserved auctions for heavy equipment.  Equipment volume is the Ritchie Brothers game and therefore, in theory, the company should benefit regardless of the environment.  In good times, operators are interested in dumping their old equipment for new and Ritchie is the beneficiary of this flood of used equipment.  In bad times, operators are more interested in buying used – again, benefitting Ritchie Brothers.  A great model, in theory.

Foolish Takeaway

Keep your eyes open for other ways to play the resource space.  All of these names offer a real business with real cash flows and a real dividend (though some are more sustainable than others) that will pay investors to wait for better times.

The S&P/TSX Composite Index is loaded with resource and financial stocks.  Because of this, investors that rely on Canadian Index funds or ETFs severely lack diversification in their portfolio, opening them to undue risks.  We have created a special report that outlines an easy to implement strategy and 5 Canadian stocks that reduce the risks involved with passively investing in the Canadian market.  Click here now to receive “Buy These 5 Companies Instead of Following a Flawed Piece of Advice” – FREE!

Follow us on Twitter and Facebook for the latest in Foolish investing.

Fool contributor Iain Butler is short $21 July 2013 put options on Ritchie Brothers, short $24 July 2013 call options on Ritchie Brothers, and owns Ritchie Brothers shares outright.  The Motley Fool has no positions in the stocks mentioned above.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

More on Investing

money cash dividends
Dividend Stocks

2 TSX Dividend Stocks Paying Big Income in a Bearish Market

Despite a pullback in the market, there are still plenty of dividend stocks paying big income to buy. Here’s a…

Read more »

Paper airplanes flying on blue sky with form of growing graph

Here’s Why Smart Investors Are Buying Bombardier Stock Hand Over Fist

Bombardier stock jumped 16% in a week amid a bearish market. What caused investors to buy this stock hand over…

Read more »

data analyze research

My 3 Top TSX Portfolio Holdings Going Into April 2023

Are you looking for TSX stocks to add to your portfolio in April 2023? Here are my three top holdings!

Read more »

consider the options
Dividend Stocks

Better Buy for Dividends – Enbridge or BCE Stock?

Given the favourable market conditions, higher dividend yield, and cheaper valuation, I am more bullish on Enbridge.

Read more »

Dividend Stocks

3 of the Best Canadian REITs to Buy While They’re Still Undervalued

These three Canadian REITs have attractive growth potential and are trading undervalued, making them some of the best to buy…

Read more »

Investor wonders if it's safe to buy stocks now
Bank Stocks

Better Bank Buy: Bank of Montreal or Bank of Nova Scotia?

Bank of Montreal and Bank of Nova Scotia trade near 12-month lows. Are these bank stocks oversold?

Read more »

Target. Stand out from the crowd

3 TSX Stocks to Buy in the Current Market Dip

The market dip from the U.S. banking crisis has created an opportunity to buy three fundamentally strong stocks before they…

Read more »

stock market
Metals and Mining Stocks

2 TSX Mining Stocks to Buy as Gold Prices Surge Past $2,000

Bullish on gold? Investing in quality mining and royalty stocks such as Barrick Gold is a solid bet in 2023.

Read more »