Newspaper article Sarasota Herald Tribune

Don't Irritate the Columnist; Pick a Stock with Some Power

Newspaper article Sarasota Herald Tribune

Don't Irritate the Columnist; Pick a Stock with Some Power

Article excerpt

Why do so many of you want to make this investing thing so difficult? Simply look for investment candidates whose products you know and understand. You want companies that have both with a track record of positive earnings growth, dividends and a future that is aligned with the economy.

So now you are probably thinking that I should provide you with an idea to get you started. OK, one possibility you might consider is Cummins (CMI).

Cummins came to my attention as a result of the recent Berkshire Hathaway annual shareholders meeting. At that meeting, Warren Buffett, Berkshire's CEO, indicated he is still interested in doing large deals, perhaps larger than Berkshire's $34 billion Burlington Northern Santa Fe acquisition.

No sooner had he said that than the Street was rife with rumors as to what companies would meet Buffett's stringent requirements. One of those mentioned repeatedly was Cummins.

It should be noted that another company mentioned regularly as one that could possibly be of interest to Buffett is Deere, a company discussed here several weeks ago. In fact, it is rumored that a possible deal was proposed by Berkshire but could not be consummated.

So why would Cummins interest Buffett? Cummins is a well-known brand with a foothold in some of the fastest-growing overseas markets and an easy-to-understand business. It manufactures portable generators and diesel engines. About 20 percent of Cummins' sales come from China, Brazil and India, three of the fastest-growing economies.

Expected to post record sales and earnings this year, Cummins trades at a price that is about 10.3 times earnings (P/E) or a discount of more than 40 percent when compared to the average U.S. firm, according to Bloomberg.

Cummins' operating cash flow this year will likely be more than triple on a per-share basis what it was five years ago, while earnings have tripled over the past decade as a result of investments in growth, new products and leading-edge technology.

The company's sales were up 36 percent from 2010 to more than $18 billion, while earnings before interest and taxes (EBIT) were up 54 percent at $2.56 billion.

Net income in 2011 was $9. …

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