Buy Cummins (CMI)
Way back on April 20, I said that I’d like to add shares of Cummins (CMI) to Jubak’s Picks. Well, the stock ran away from me, I mean really ran, before I could get in a buy. Now thanks to the European debt crisis the shares have given up all that gain and a little bit more. And I’m adding Cummins to Jubak’s Picks today, May 5.
As I wrote in my post “And now for the good news (on the U.S. economy anyway)” http://jubakpicks.com/2010/05/05/and-now-for-some-good-news-on-the-u-s-economy-anyway/ the U.S. economic recovery is on track for decent if not spectacular growth. In that environment I want to own growth stories where the basic underlying positives of the U.S. economy get a rocket booster blast from pent-up demand that has built up during the Great Recession. (For more on that kind of growth stock see my post http://jubakpicks.com/2010/04/20/go-for-the-growth-and-where-to-find-it-at-a-reasonable-price/ )
You can find examples of that throughout Jubak’s Picks: Intel (INTC) and Microsoft (MSFT) are good examples. Cummins is another.
Sales of Class 8 trucks—the big rigs—fell well below the long-term replacement rate during the Great Recession. The result is that the age of the U.S. fleet is now at a two-decade high. That’s a classic replacement drives demand story. Orders have started to turn up so the industry looks like its seen bottom. And while customers were sitting on the sidelines truck makers and their suppliers, especially among the engine makers, were turning out new products that used less fuel and produced lower emissions. Not a minor point when the EPA (Environmental Protection Agency) is putting in tighter emissions standards. Cummins has said in recent guidance that it expects replacement sales to surge at the end of 2010 and into 2011. I think it’s time to anticipate that growth. I’m adding this stock to Jubak’s Picks with a target price of $79 a share by March 2011.
Full disclosure: I will buy shares of Cummins for my personal portfolio three days after this is posted.
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If any of you are going to go with Jim on this pick, I would suggest you wait the three days with Jim to buy it. Seriously.
Mind you, I don’t necessarily think there is anything wrong with Cummins. In a bull market, I might be buying it now.
But there is a lot of uncertainty and volatility in the market today, and most of it will be with us for the next few days, if not significantly longer. Frankly, I would not be surprised to see Cummins at a much more reasonable price in 3 days. Why not wait?
Is the price target right?
Ed, once again, I’m with you. Looks like CMI will bounce off its 30-d MA of about $67 short-term, IF the market doesn’t continue to correct. Oddly, support looks good at $2 intervals – $60, $62, $64. OTH, if we test the March lows, $58/shr may be a good entry.
joer,
$79 is about right. The highest analyst target I’ve seen was $90, although $79 is definitely in the range.
If you buy it now at a little over $71, you’ll make a bit over 10% on it.
Jim,
I’m getting mixed messages here. Yesterday you recommended to sell on the next short rally and lighten up exposure to the market for inevitable summer downturn. Today you’re recommending buys, growth stocks, and talk about a positive outlook on US economic growth?
Life goes on . . . : )
Marr.bo – If you read yesterdays post enirely you would see
“Look around for bargains among growth stocks. Stocks really aren’t responding to good news with higher prices right now. And many that have jumped on good earnings news in April have just about given back all of the bump.”
Anything risky you were planning on dropping early summer you might want to drop sooner. But that doesn’t mean there aren’t longer term deals to be had.
Wish I could edit … Maybe I should proof read better
Off topic
Mr. Jubak,
I was wondering if you would have some time to comment on these three stocks in your 50 best portfolio, BHP,FSUMF and VALE.
In light of the “super tax” that may/will be imposed in Australia on resource companies, I was wondering if any of these may cease to be held on your list of 50 best stocks to own. It seems like we may see somewhat of a change in how these companies invest in their Australian operations, as well as a significant impact to their bottom lines.
I know that right now we face larger challenges in our portfolios, but was wondering if you had any thoughts regarding these holdings of yours, and the long term impact of Australia becoming one of the most taxed countries in the world for resource companies..
-DJB
Slow Cat,
I have to agree with marr.bo on this one, even based on the quote from Jim. Is an $8 profit on a $71 stock really a “growth” opportunity? Sure, it beats taking a loss, but I’m not sure I’d call that a “growth bargain”.
I would call Cummins more of a “quality/technical” play with a sprinkling of “growth”.
I personally think Cummins will fall a little more over the next few days. I will agree that it probably isn’t the best pick for growth, but there are several areas of opportunity.
I should have put it this way. The market uncertainty right now means it’s probably a good choice to let go of some stocks, since the next few months will be bumpy. But at the same time those bumps MAY make it easier to get into other stocks that have better long term potential.
Mr Jubak
Follow on to off topic above…
It also may effect CAT
“Any downturn in mining activity would affect mining services companies such as WesTrac — which operates the Caterpillar franchises in NSW, Western Australia and northern China ”
“Levy a threat to WesTrac earnings ”
http://www.theaustralian.com.au/business/levy-a-threat-to-westrac-earnings/story-e6frg8zx-1225862771732
Jim,
I can’t believe that you dont look at health care sector. For example GILD trades at 11 times 2011 f/e. I know that you used to own that stock b4. I would like to hear what is your thought about the industry overall. It seem cheap to me..
Good call on GILD — appears to be a great value as does ARCC. GILD is historically cheap on all metrics–the only fear is gov’t regulation. With that said, I bought some last week.
Why CMI over AONE (on Jim’s watch list, and now down 40% or more since being added)? If you’re looking for reasonably priced growth, and batteries are the future, and your target is trading almost half off from when you started eying it, then it seems that should also be on the buy list for reasons comparable to those driving CMI, Paccar, etc.
Course it might help if the company wasn’t losing so much money…
CMI may be a good “flight to safety” trade. You guys are all over the place (uncertain). Hold some of the old standbys and wait this out.
@amrtend10: why do you think CMI is a good “flight to safety” trade? I only hear Jubak speaking of it in terms of growth.