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

Target. Stand out from the crowd
Dividend Stocks

RRSP Pension: 2 Dividend Stocks to Buy on the Latest Dip

These high-yield TSX stocks look cheap right now for RRSP investors.

Read more »

bulb idea thinking
Investing

The Smartest TSX ETF to Buy With $1,000 Right Now

Forget the TSX 60 or the TSX Composite. I prefer the TSX Dividend Aristocrats.

Read more »

Canada Day fireworks over two Adirondack chairs on the wooden dock in Ontario, Canada
Retirement

CPP Benefits Not Enough? This Top Dividend Stock Can Help Fund Your Retirement

Canadian retirees can look to supplement their CPP payout with quality dividend stocks such as Headwater Exploration.

Read more »

grow dividends
Stocks for Beginners

Why Cargojet Stock Is Surging Past 52-Week Highs

Cargojet (TSX:CJT) stock surged by 17% after a new deal was announced, with upgrades coming in as well for the…

Read more »

protect, safe, trust
Investing

It’s Time to Defend Your Wealth: 3 Top Stocks to Help Keep What’s Yours

For those looking to defend your wealth against what appear to be robust oncoming macro headwinds should consider these stocks.

Read more »

Retirees sip their morning coffee outside.
Dividend Stocks

Safe and Sound Stocks for Canadians: My Top 5 Choices

Five safe stocks to buy on a market pullback.

Read more »

Financial technology concept.
Investing

Couche-Tard Stock: Today Is a Huge Buying Opportunity

Alimentation Couche-Tard (TSX:ATD) stock looks like a steal after its latest unwarranted plunge into a correction again.

Read more »

A stock price graph showing growth over time
Metals and Mining Stocks

Why Cameco Stock Soared 23% This Year

Cameco stock continues to ride high on strong supply/demand fundamentals and growing momentum in the nuclear industry.

Read more »