It's probably your last chance to consider Cummins

Posted Aug 3rd 2009 5:30PM by Joseph Lazzaro
Filed under: Stocks to Buy

I'm reiterating my Buy rating for Cummins Inc. (NYSE: CMI), first recommended on April 3, 2009 at a price of $29.70.

A global manufacturer and servicer of diesel and natural gas engines, electric power generations systems and engine-related parts, Cummins is the not-so-little-engine that could.

I originally expected a hair-cut on likely declining sales in FY2009, followed by a recovering share price in FY2010. But the market didn't see it that way, with institutional investors incrementally adding to positions, and as a result CMI is up about 40% since the April Buy recommendation. The First Call FY2009/FY010 EPS estimates for CMI are $1.31 to $1.83.

I obviously still like CMI here, on the company's capacity to take on new business and on cost containment, but with a share price in the mid-$40s, this is probably your last chance to earn an out-sized gain with CMI.

Stock Analysis: Cummins is a moderate-risk stock. If you've already purchased the company's shares, hold them. If not, consider buying a 50% position in CMI now; then buy another 25% in three months, if U.S. and global economic conditions don't worsen substantially. Under any circumstance, don't buy more than 75% of your CMI position before October 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.

Tags: CMI, Cummins