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Gearing Up to Buy the Big Rigs
05/05/2010 2:12 pm EST
Way back on April 20, I said that I’d like to add shares of Cummins (NYSE: CMI) to Jubak’s Picks. Well, the stock ran away from me—I mean, really ran, before I could get in a buy.
Now, thanks to the European debt crisis, the shares have given up all that gain and a little bit more. And I’m adding Cummins to Jubak’s Picks as of Wednesday, May 5.
As I wrote in my post, “And now for the good news (on the US economy anyway),” the US economic recovery is on track for decent, if not spectacular, growth. In that environment, I want to own growth stories where the basic underlying positives of the US economy get a rocket-booster blast from pent-up demand that has built up during the Great Recession. (For more on that kind of growth stock, see this recent post.)
Sales of Class 8 trucks—the big rigs—fell well below the long-term replacement rate during the Great Recession. The result is that the age of the US fleet is now at a two-decade high. That’s a classic replacement-drives-demand story. Orders have started to turn up, so the industry looks as if it’s seen bottom.
And while customers were sitting on the sidelines, truck makers and their suppliers, especially among the engine makers, were turning out new products that used less fuel and produced lower emissions. Not a minor point when the Environmental Protection Agency (EPA) is putting in tighter emissions standards.
Cummins has said in recent guidance that it expects replacement sales to surge at the end of 2010 and into 2011. I think it’s time to anticipate that growth. I’m adding this stock to Jubak’s Picks with a target price of $79 a share by March 2011. (It traded above $70 Wednesday morning.)
Full disclosure: I will buy shares of Cummins for my personal portfolio three days after this is posted.
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