International strength should give Terex positive growth potential

Beleaguered equipment manufacturer Terex (NYSE: TEX) is finally establishing defenses against domestic economic malaise and uncertainty.

The company posted a bigger-than-expected loss for the third quarter, despite a 15 percent jump in net sales to $1.08 billion. Its consolidated order backlog expanded 8 percent sequentially from the second quarter, thanks in large part to a 45 percent surge within the aerial work platform segment. Demand for Terex’s telehandlers and other mobile lifting equipment emerged principally from South America and an $18.9 million supply contract with the U.S. Marine Corps.

By far the most encouraging development has been Terex’s effort to increase its overseas manufacturing presence in places such as China and India. Developing a strategic presence in emerging Asian markets may be the single greatest differentiator between survivors and victims of economic stagnation in the West.

Developing markets account for one-third of Terex’s overall sales. Citing robust demand for coal-crushing equipment in places such as Australia, Terex aims to increase production at its materials processing facility in India. The company also boasts a 60 percent interest in a joint venture to produce similar equipment in China, and it has also acquired a 65 percent stake in a Chinese manufacturer of lattice boom crawler cranes.

These and other international initiatives are building a formidable fortress for Terex. Assess its long-term potential accordingly.

Ask the Fool

Q: I bought 100 shares of Cisco Systems for around $90 each way back in 1999. They’ve recently been trading in the mid-$20s. I refuse to sell them at a loss. Will the stock ever recover to $90? – N.R., Escondido, Calif.

A: First off, know that when you see a Cisco stock price of, say, $23 today, you’re looking at a number that’s “split-adjusted.” If you bought your shares in November 1999 for $90, the stock split 2-for-1 after that, reducing your cost basis from $90 to $45. Meanwhile, your 100 shares were doubled, leaving you with 200. At $23 apiece, those 200 shares are worth $4,600. So your loss is close to 50 percent, less than what you might have thought.

The past shouldn’t matter, though, in your decision to hold or sell. What matters is how you expect your shares to perform from here. If you don’t have a good handle on Cisco’s financial strength and competitive position, or perhaps any compelling reason to hang on, consider selling. You should be invested only in your best ideas. (That said, many still have great expectations of Cisco.)

Even when you lose money on a stock, you might stand a better chance of making your money back in some other company in which you have more faith. There’s no reason to insist on making your money back on THAT stock.

My dumbest investment

In grad school, my real estate professor said that the dumbest thing one could do was make a real estate decision based on tax considerations, since tax laws could change overnight. I never violated that rule in real estate, but I did invest in an oil partnership where the only benefit was the favorable tax treatment – and lost money, because the tax laws did change. No investment decision should be based on tax considerations. – M.S., Dallas

The Fool responds: This is a great lesson. It’s smart to consider taxes when you invest, but don’t let the tail wag the dog. First be sure you find the investment compelling on its own merits.

Some folks these days are even wary of Roth IRAs, which promise tax-free withdrawals in retirement. They remember how Social Security benefits were never supposed to be taxed.

Roths are very attractive, especially for those with many years in which their investments can grow powerfully. Just keep it in the back of your mind that Roth IRAs may work a little differently in the future than they do today.