Hilary Kramer has 30 years of experience on Wall Street; she was an analyst and investment banker at...
One Stock Type Stands Out
09/25/2013 12:00 pm EST
A recent investor conference highlighted the type of company that MoneyShow's Jim Jubak thinks will do well in the current environment and continue to improve in the future.
Okay, I think we're starting to get an idea for what might be the ideal kind of stock for the economy as we're looking at it, and if you look at the analyst state that Cummins—that's symbol (CMI), they're a diesel engine manufacturer—recently held on September 16, you get a sense of what that is. What they said hit a very good chord with Wall Street. You had people raising their target prices by $20 and $30 a share. Cummins trades at $135, so that's not quite as big as if you were talking about a $20 increase on a $50 stock, but still pretty impressive.
What Cummins said that really, I think, has resonated with Wall Street and investors is that, "Hey, we're going to be able to grow faster than GDP." I think this is the big challenge, and for Cummins, it's going to do it in two ways. One is, they're going to find, they're investing in new products, so they're coming out and that's going to give them better margins, new sales, and the others are taking market share.
What I think you're looking at if you're trying to figure out where you might want to put your money, if you can find another stock like Cummins, great, but Cummins is the model, and the reason is that you're looking at growth in the US, 2%, in Europe, a recovery to maybe 1%. You see growth falling in China, India, Brazil, all of those markets are not doing all that well, and it doesn't seem like it's a short term problem. It's not going to be fixed in one quarter, so if you'd really like somebody that's growing better than 2% or 4% or 5%, you've really got to find somebody who's investing in R&D. And that's what Cummins is doing, they're coming out with new products all the time, lower emissions to sell diesel engines into countries which are sort of tightening down on the emissions that diesels can put out. They've got a new line of natural gas powered engines coming out for buses, et cetera, so product innovation, as well as, they seem to be able to lower their costs and so they're gaining share from competitors. Those two things enabled them to grow faster than the market, and I think that's actually the kind of stuff you're looking for in this particular economy, and that is going to be rewarded by investors who know what this economy is like.
This is Jim Jubak for the MoneyShow.com video network.
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