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.