The Market Mis-pricing of the Century (NYSE: TEX)

NEW YORK - Terex may be the most mis-priced stock on the market and we are likely to see a substantial re-pricing following its Q3 results set for tomorrow after the closing bell. Instead of harping on their impressive revenue growth and return to solid profitability tomorrow and their greatly improved outlook and earnings going forward. That all has been done to death and can be read here.

What I want to focus is on one market peculiarity that needs to be mentioned which greatly disproves that the market is efficient. Terex bought 82% Demag Cranes in August for 45.75 a share today the investment trades at 60.33.

The value of 82% of Demag is $1.47 billion and Terex is selling for $1.52 billion. Even more absurdly Terex traded at around $1 billion a couple of weeks ago with Demag remaining around that similar value. It seems the market is greatly mispricing the relationships between the two companies. The German market is saying Demag has lots of value, The U.S. market is saying it either has no value or the rest of Terex's businesses have none.

Either way the fair value of Terex's tangible equity is $19.27 a share with the Demag purchase. Meaning the company's pieces sell substantially more than the whole. In a worst case scenario shareholders can expect to be compensated nicely even if Terex never does anything. This can't be said for stocks like Caterpillar who depend on future earnings for their valuation. This means Terex has a huge way to go valuation wise to get to fair value which is about $45 a share or 221% upside from here. People may think these numbers are nuts because they are such high gains but they really should think the market is nuts for pricing a stock that rewards investors with such returns so easily.