Cummins: Time to Take Some Profits?

However, those investors who can tolerate the risk can maintain their full position, as CMI shares may test $130 by the end of 2011 and $150 in 2012.

Further, I'd raise the sell/stop loss to $85 from $77 at this stage, making this a 180% profitable trade at the $85 stop price. Decent, to say the least.

As noted, there's probably more upside ahead for Cummins. Cummins will likely post a 15% to 20% revenue gain in 2011, after a 22% increase in 2010.

With more than 50% of its revenue from international sources, Cummins is obviously well-positioned for the global recovery, as sales of its efficient truck engines and infrastructure-based power generation equipment increase. Look for CMI to post strong engine sales growth in India, China and Brazil, and when you have a product that's in-demand in those rapidly growing economies, you're in the catbird seat.

What's more, North American truck engine demand should show continued signs of recovery in 2011, as the U.S. economy expansion progresses.

The Thomson Reuters First Call FY2011/FY2012 EPS estimates for CMI are $7.21 to $8.67, and each looks about 5% low, according to my analysis.

Technically, as noted, Cummins shares look like they've registered a healthy correction, after an impressive 2010 gain, and there is scope to $130 and beyond.

2011 Outlook: I view Cummins as a long-term play, but if you're looking to sell CMI within the year, it's probably best to take your profits after it rises to $117 to $119, if it fails to clear $120.

Stock Analysis: I consider Cummins to be a moderate-risk stock. If an investor has already purchased the company's shares, I'd hold them. If not, I'd consider buying a 25% position in CMI now. I'd put a sell/stop loss at $85.

Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.