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Strategies & Market Trends : Fundamental Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: bruwin who wrote (1850)

7/20/2012 8:38:59 PM

From: Brian Sullivan

1 Recommendation Respond to of 4719

Cummins Is A Bargain Right Now

seekingalpha.com

Everybody loves to find a good deal these days. Who wouldn't want to save 20% on their dream car, or that flat screen they've been dreaming about? Investments are no different; everyone loves a good deal on their dream stock. But sometimes investors just don't realize great deals in the market, and this gives you more time to capitalize on their mistake. As the Franklin Templeton commercial goes, "See now what others see eventually."

There are plenty of great values out on the market, but I believe that Cummins Inc. ( CMI) is especially positioned to take advantage of a potential market rally, because it's taken such an undeserved hit in recent months. Cummins has been beaten up for some concerns regarding slowing growth in China, Brazil, India, etc., and U.S. economic uncertainty only adds to the fear surrounding the stock.

Yes, these bearish indicators are all reasons to be a little worried, but they do not present a good excuse to sell. Jim Cramer would be ashamed of those who panicked and sold their positions because of some news headlines; I can picture him right now yelling in what seems like a different language. While Cramer would be shaking his head right now, value investors should be thanking those who dumped their holdings, because now we have this excellent buying opportunity.

Cummins has tumbled 22.74% over the past three months. On July 10, the company announced that it had lowered full year revenue guidance, sending the stock to levels just 5% above its 52 week low. However, the company did announce a 25% increase in its quarterly dividend, bringing it up to par with industrial heavyweights like Deere ( DE) and Caterpillar ( CAT).

Despite a bleak outlook for the current year, management must be confident that Cummins will be able to sustain a sound financial position. Why else would they raise the dividend by 25%? Investors seem to look at the glass as half empty: "Dismal revenue guidance for one year is much more important than an increasing dividend, which will be paid for decades." This, at least to me, is completely illogical.

Looking at the glass as half full we can say that Cummins has been able to, even in a sluggish economy, increase year-over-year earnings consistently as of late.

EPS	Prior Year EPS	Difference ($)	Difference (%)
Q3'11: $2.20	$1.44	$0.76	52.78%
Q4'11: $2.56	$1.84	$0.72	39.13%
Q1'12: $2.38	$1.75	$0.63	36.00%

Cummins has a very strong bottom line, like other industrials such as Joy Global ( JOY), but they have still been beaten down by macroeconomic fears, Joy Global declining 30% in the past three months. In addition to solid earnings, Cummins also has a great balance sheet and respectable margins. Here are some important statistics.

Market Cap: $16.90 billion
Current Share Price: $88.70
52 Week Range: $79.53-$129.51
Trailing P/E: 8.70
PEG: 0.74
Operating Margin: 11.92%
Profit Margin: 10.58%
ROE: 35.58%
Total Cash: $1.57 billion
Total Debt: $683 million
Dividend (%): $2.00 (2.30%)

(Find more stats here.)

Looking at these metrics, Cummins seems like an attractive buy right now, especially since it's 23% cheaper than it was three months ago. Comparable engine maker Westport Innovations Inc. ( WPRT) is actually up 14.24% over the last three months; but the company remains unprofitable.

Cummins has been in business for almost 100 years, and isn't going away any time soon. Some people act like the world is about to end whenever a short term problem arises, presenting a great buying opportunity for those in it for the long haul. So if your stomach is strong enough to get you through some short term volatility, then Cummins is the way to go.

To: bruwin who wrote (1850)

7/23/2012 8:56:53 PM

From: Brian Sullivan

1 Recommendation Read Replies (2) | Respond to of 4719

Company Profile CMI

What Does This Company Do?
Indiana-based Cummins designs, manufactures, distributes, and services diesel and natural gas engines, electric power generation systems, and engine-related products. The firm sells to original equipment manufacturers and distributors, including PACCAR and Daimler, through a network of 600 independent distribution centers and 6,500 dealer locations in more than 190 countries. Cummins employs 44,000 workers and generates annual revenue of $18 billion.

The result has cemented Cummins as one of the world's only fully integrated engine manufacturers. Today, Cummins constructs the critical components--those that drive fuel economy and emissions controls--in-house and outsources the non-value-added components. Aside from our estimate that its break-even level has fallen nearly 20%, this technological mastery is important for two main reasons.

First, the government regulations for emissions control and fuel economy that have crept into the developed nations will blanket the globe in the coming decade. This should benefit Cummins tremendously, since the per-engine dollar amount of content will increase at least 60% from current levels, and because these are sophisticated technologies, we expect the company can capture a greater proportion of the economic profits.

Last Price

$87.46

		52-Week Range 79.53-129.51	Yield 1.83	Market Cap 17.1 bil



Volume 2.9 mil	Avg Vol. 2.9 mil	Forward P/E 7.9	P/B 2.8	P/S 0.9	P/CF 8.5