Without question, it remains a market for the bold. There are some 'green shoots' sprouting in the economy, to cite phrase popularized by Fed Chairman Ben Bernanke, but there still are formidable problems. That said, no one ever made a dime by establishing stock positions when things are 99% safe: by that time, almost every stock has been bid-up. You have to prudently bottom fish, and with that in mind, Cummins Inc. (NYSE: CMI) is worth a review.
Cummins is another one of those stocks that has been rudely treated by the markets. A global manufacturer and servicer of diesel and natural gas engines, electric power generations systems and engine-related parts, sales are expected to decline about 20% in 2009, after a roughly 10% gain in 2008. So, naturally, the Street took shares down about 75%. From about $75 to the $18 range: talk about haircuts.The First Call FY 2009/FY 2010 EPS estimates for CMI are $1.92 to $2.13.
Cummins' shares have recovered to about $30 but analysts remain concerned about the headwinds facing truck engines and engine parts, given emerging market GDP stress. The view from here argues they're overlooking rays of light in its infrastructure-related power generation business. Further, any signs of renewed growth in the global economy will be pure upside for the company, and while it's not time to 'back up the truck' with CMI, the risk/reward warrants squirreling-away a few shares now.
Stock Analysis: Cummins is a moderate-risk stock. Consider buying a 25% position in CMI now; then buy another 25% in three months, if U.S. economic conditions don't worsen substantially. Under any circumstance, don't buy more than 50% of your CMI position in the first half of 2009. Sell/Stop Loss if you were to buy shares in this company: $15.
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Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.
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