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.
Nervous? Afraid to stay in but scared to get out? Join the club (and read my three strategies for coping)
Feeling twitchy?
Your portfolio is probably full of stocks trading at 52-week highs. And I’ll bet you’ve thought about selling.
And you would do that–except that the stock market keeps going up (well except for the last couple of days), cash pays close to nothing, and it’s hard to find a stock to buy that’s not already trading at its 52-week high.
I think you’ve got three choices at this point in this stock market.
- Sell despite the signs that this rally is likely to run into the first half of 2010. Your money will be safely in cash but you won’t make squat for six months.
- Hold if you’re fully invested and buy if you have some cash in the knowledge that you’re betting on market momentum and global cash flows to drive this market higher even in the absence of reliable forecasts for the economy and earnings in 2010. You’ll be hoping that you can somehow see the turn coming (or that there won’t be a turn) in time to beat the rest of the world’s investors out the door.
- Hold carefully and buy even more carefully when and only when you can find some fundamental facts that say the 52-week high isn’t a ceiling but a stopping off point on the way to a higher high. After all Ford Motor (F) did climb to a new 52-week high at $8.98 a share from a 52-week low of just $1.01 a share. But the stock did trade above $14 in 2004. In that year the company made $1.59 in earnings per share. Wall Street estimates Ford will earn 43 cents a share in 2010. It’s clear that the stock will has upside from here if earnings come through.
I think there are problems with each of these three strategies. But I do think that if you take a dash of this and mix it with a pinch of that, you can come up with a strategy that limits risk and gives you decent upside exposure. Let me lay out that hybrid strategy for you and suggest a few stocks suited to playing mix and match.
Head to head: Apple versus Nokia. Which is the better stock to buy?
Apple (AAPL) crushed Wall Street estimates when it reported earnings on July 21. Earnings per share for the company’s fiscal third quarter grew 13% from the third quarter of 2008. Revenue grew by 12% in a quarter when almost no company is reporting any sales growth.
Nokia (NOK), on the other hand, stunk up the joint with its second quarter results announced on July 16. Earnings per share did meet expectations but that was the last piece of good news that the cell phone maker delivered. Revenue missed projections by 3.8% and plunged 24.6% from the second quarter of 2008. Unit volume fell 15% from the second quarter of 2008. And the company took back its forecast that it would pick up market share in 2009. Now Nokia is saying its share will stay flat this year.
So which of these two stocks is a better buy? It’s not as easy a decision as it looks.
So where’s the growth? IBM’s earnings climbed but sales fell.
So where’s the revenue growth to keep the rally going?
The July 16 earnings results from IBM (IBM) were great news for IBM and its shareholders. The company did beat Wall Street earnings projections by 30 cents a share for the second quarter of 2009 when it reported $2.32 a share instead of the $2.02 Wall Street consensus. And gross profit margin did climb to 45.5% in the quarter from 43.2% in the second quarter of 2008.
But the news in IBM’s report wasn’t nearly as good—in fact I’d call it downright stinky–for the stock market and the economy as a whole. IBM’s revenues dropped, 13.3% from the second quarter of 2008, and fell short of analyst projections by about $340 million. The weakness wasn’t limited to the United States either. Revenue fell for the Americas (down 9%), Europe/Middle East/Africa (down 20%), and Asia/Pacific (down 7%).
If one of the strongest companies in the world can’t generate some revenue growth, then those green shoots of economic recovery that everybody keeps talking aren’t enough to support a sustained increase in stock prices from current levels.
