When on April 30 Cummins (CMI) announced that the first quarter would mark the low point in revenue for 2013, markets ignored the news and instead focused on the company’s big first quarter earnings miss. (You have to admit missing by 37 cents a share and reporting a 12.3% year over year drop in revenue does draw attention.)
But a month later, the company is standing by the comment and has added some detail. Truck sales in China, which were down 12% year over year in the first quarter have improved enough so that through April year to date sales are down just 2% year over year. In the United States orders look stable and in Brazil sales are trending slightly better than expectations.
I think all this is a tribute to management that continues to invest in technology—which then enables Cummins to gain market share on competitors. That’s turning out to be particularly valuable in a soft market for truck sales and should, in the long-run, give the company a big hunk of the sales that are visible not so far down the road as truck owners upgrade to less polluting trucks under the force of new regulations and to more fuel-efficient trucks under the force of rising fuel prices. I also like the company’s leading position in developing natural gas powered truck engines. The company’s engine for heavy-duty trucks hit the market this year and its medium duty engine is scheduled for 2015
It’s this longer term prospect and the company’s ability to manage for it that led me to add Cummins to my Jubak Picks 50 long term portfolio http://jubakpicks.com/jubak-picks-50/ on May 3. (See my post http://jubakpicks.com/2013/05/03/10-long-term-picks-in-a-short-term-market/ for all the updates to the portfolio. I’m still catching up on posts on the individual picks. This is four down and six to go.)
The shares traded at $110.60 on May 3. They closed at $117.27 today, May 28. I think the current market is volatile enough so that if you are a good trader you should be able to buy shares at a lower price sometime during the summer. If you’re a long-term investor, I’d suggest dollar cost averaging.
Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. When in 2010 I started the mutual fund I manage, Jubak Global Equity Fund http://jubakfund.com/, I liquidated all my individual stock holdings and put the money into the fund. The fund did not own positions in Cummins as of the end of March. For a full list of the stocks in the fund as of the end of March see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/