Cummins has the right truck engines at the right time

Posted Oct 27th 2009 6:00PM by Joseph Lazzaro
Filed under: Stocks to Buy

The global recovery is underway, and that's goods news for Cummins, Inc. (NYSE: CMI), which is why reiterating my Buy rating for the company's shares, first recommended on April 3, 2009 at a price of $29.70. If you bought CMI in April, you're up an impressive 57%.

Look for Cummins, with more than 50% of its revenue derived from international markets, to register an impressive FY2010 revenue gain, on sales gains of its efficient truck engine and infrastructure-based power generation equipment. Basically, institutional investors (IIs) have looked beyond CMI's FY2009 revenue decline, and have bid-up the company's shares since March, on the U.S./global economic recoveries.

The First Call FY2009/FY2010 EPS estimates for CMI are $1.37 to $1.93.

Hence, any hint of slower global GDP growth or a double-dip U.S. recession would send Cummins' shares tumbling, but based on current data the risk/reward remains tipped toward a Buy.

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