3. Cummins (CMI) makes diesel and natural-gas engines, electric-power-generation systems and engine components. Its products are used in industrial equipment and agricultural and construction machinery.
Cummins has benefited from government-infrastructure spending on big projects such as bridges, roads and the like, particularly in emerging markets. It is also getting a boost from the huge demand for mining equipment. The company is known for its quality and it maintains a low-cost business model by manufacturing nearly all its own engine components. In the third quarter, revenue increased 34% including a 56% jump in sales outside the U.S. Cummins' trailing 12-month profit has more than quadrupled from a year earlier.Outlook: Cummins shares have risen 143% this year, including 21% in the past three months, reaching a record $111.70 on Dec. 23. Although its long-running contract to supply engines to Navistar (NAV) is running out, Cummins is expected to benefit from demand for new trucks as the economy recovers. Commercial vehicles haven't been replaced during the recession at normal intervals, meaning there is significant pent-up demand. Also, the company is expanding its footprint internationally via joint ventures. This month it announced an engine plant in India with Tata Motors (TTM), and it is building one in China. The company's forward price-to-earnings ratio of 16.3 is beginning to look pricey as its historical norm is 14. Eight analysts rank its shares "buy," one "outperform" and nine "hold," according to FactSet.
2. F5 Networks' (FFIV) Application Delivery Controller (ADC) products help companies manage their computer network traffic more efficiently. It also has products that address security concerns. F5's customer base has evolved from an initial focus on Internet service providers, Web sites and e-commerce sites to the Fortune 500 corporate IT market. Its clients now include: Citigroup (C) and General Motors (GM). F5 is taking market share from bigger competitors such as Cisco Systems (CSCO). In fiscal 2010, revenue grew 35% as operating margins expanded to 26.1% from 19.3%. Outlook: In the fourth quarter, revenue rose 45%, which bodes well for 2011 as the pace of revenue growth increased throughout the year. Analysts' consensus five-year annualized earnings growth forecast is 23.5%, roughly double that of the S&P 500. Analysts give the company mixed reviews, with 14 rating it "buy," two "outperform" and one "sell," according to FactSet.
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