Cummins Inc (CMI) is heavily engaged in the design, manufacturing, distribution and service of diesel and natural gas engines. Their engines are associated primarily with heavy and medium-duty trucks, buses and other industrial machines and vehicles.
Over the past few days the stock has sold off sharply. It’s now trading at $143 per share, while a month and a half ago it traded above $160 per share. The most recent slide, which has occurred this week, stems from Cummins reporting an increase in anticipated revenue without growth in its profit margins. In my opinion, investors have overreacted to news that isn’t good, but isn’t really bad either.
Cummins is a mature company. The natural gas segment of the business gives it a good deal of exposure to capitalize on a growing trend amongst the transportation industry; a shift away from diesel towards natural gas engines. Current projections expect heavy-duty truck sales to grow 14% year over year and shipments by truck to expand by 26%. If these figures hold true, then the increase in profit margins will come for Cummins.
If you’re in the market for a company that is well established and provides a good that will be in demand for he foreseeable future, Cummins should be on your list. The recent sell off is a buying opportunity to get in at a discounted price and earn a an annual dividend yield of 1.6% while you wait for the stock to regain its footing.
Disclosure: No Position