Wednesday, February 15, 2012

CMI: The glitter of engines

Cummins Inc. (CMI) makes engines. Gas, diesel and natural gas engines, electric power systems, components used in manufacturing and servicing engines. The Columbus, Ohio company sells in nearly 200 countries globally. (Since there are 206 sovereign states, Cummins pretty much as the world covered.)

CMI began a sharp rise on Jan. 3 from $90.45 after a gapping above the prior day's close. It rose to an all-time high today of $123.18 with only one shallow correction.

The company had the most bullish chart of 16 selected at random from 675 large-cap stocks. DVA was the runner-up. CPL and XLNX completed the final four.

I don't think of engines as being a go-go business filled with glitter and excitement. I don't think of engines as being the iPad. But with a return on equity of  37%, CMI stands just 8 percentage points below AAPL, so it is up there partying with the glitterati.

It has quite low long-term debt, amounting to just 12% of equity. Institutional ownership stands at 85%, and the price is still fairly inexpensive. It takes $1.30 in shares to control a dollar in sales.

Analysts overall rate the company a buy.

The next earnings announcement is scheduled for May 1. The stock goes ex-dividend on Feb. 21 for a quarterly payout yielding 1.31% annually.

The company has good liquidity, with an average volume of 3.1 million shares a day. The options inventory is wide, the open interest is quite high, and the bid/ask spread is acceptable for such a high-priced stock.

Implied volatility at 36% is at historic lows but has been trending upward since Feb. 1. Given the low volatility, my trading instrument of choice would be long options.

Decisions for my account: I bought calls for June expiration with $115 strikes.

I screened the stocks using a tourney bracket with a one-month daily chart and a three-day half-hour chart, and then turned to a five-year weekly chart for the broad context in analyzing the bracket winner. See my essay "10,000 Charts" for a discussion of my screening methods.
Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.
No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.

No comments:

Post a Comment