This Domestic, Industrial Company’s Business Is Booming—Really?

By Thursday, December 16, 2010

Cummins stockLong-time readers of this column know of my affinity for reviewing winning stocks. Even just a cursory review of stocks that have done very well helps in my view to improve your stock-picking skills. At the very least, it helps to develop your market view. It’s like a race car driver reviewing tapes of previous races; the process of doing so improves your own skill.

One of the most outstanding stock market performances from a large-cap, S&P 500 company has been from Cummins Inc. (NYSE/CMI). This is an industrial company that nobody thinks about, but business is booming. The company manufactures diesel and natural gas engines, and it’s highly likely that you’ve ridden around in a vehicle or bus with one of its engines under the hood. You probably didn’t even know it.

Cummins has been a powerhouse wealth creator this year and is another positive signal for economic recovery, particularly in the transportation sector. This stock has more than doubled to its current level of over $100.00 a share, and I think company management will soon consider a two-for-one stock split.

This stock has actually been a huge wealth creator ever since the financial crisis. The share price is up nearly fivefold since then and the company is hiring new workers again. The company’s domestic demand for new engines is flat, but it’s the business in China, India and Brazil that’s booming. Cummins is likely to experience a significant increase in bottom-line earnings in 2011 and the stock should keep breaking new records.

Companies like General Electric Company (NYSE/GE), United Technologies Corporation (NYSE/UTX) and 3M Company (NYSE/MMM) are also saying the same thing. Business is getting better. Fourth-quarter earnings should be decent. And their operations in Asia are doing great. Cummins is getting nearly 20% of its revenues now from China and India and this number should increase, as those two countries have a greater tendency to use diesel over gasoline.

You can see then how stock prices in U.S. large-caps can be so strong, even as the domestic economy is weak. It’s because these international businesses are doing well in Asia and those earnings are translating even better with a weaker dollar.

The broader market might pull back significantly in 2011 on domestic economic news. For now, however, the action is tending towards more upside.


About the Author | Browse Mitchell Clark's Articles

Mitchell Clark is a senior editor at Lombardi Financial, specializing in large- and micro-cap stocks. He’s the editor of a variety of popular Lombardi Financial newsletters, including Micro-Cap Reporter, Income for Life, Biotech Breakthrough Stock Report, and 100% Letter. Mitchell has been with Lombardi Financial for 17 years. He won the Jack Madden Prize in economic history and is a long-time student of equity markets. Prior to joining Lombardi, Mitchell was a stockbroker for a large investment bank. In the... Read Full Bio »

Sep. 4, 2015
Trailing 12-month EPS for Dow Jones companies (Most Recent Quarter) $1014.15
Trailing 12-month Price/earnings multiple (Most Recent Quarter)

17.44

Dow Jones Industrial Average Dividend Yield 2.62%
10-year U.S. Treasury Yield 2.19%

Immediate term outlook:
The bear market rally in stocks that started in March 2009, extended because of unprecedented central bank money printing, is coming to an end. Gold bullion is up $1,000 an ounce since we first recommended it in 2002 and we are still bullish on the physical metal.

Short-to-medium term outlook:
World economies are entering their slowest growth period since 2009. The Chinese economy grew last year at its slowest pace in 24 years. Japan is in recession. The eurozone is in depression. With almost half the S&P 500 companies deriving revenue outside the U.S., slower world economic growth will negatively impact revenue and earnings growth of American companies. Domestically, America’s gross domestic product grew by only a meager 2.3% in the second quarter, which will negatively impact an already overpriced equity market.

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