2. Cummins ( CMI) builds diesel and natural gas engines, engine components and electric power-generation systems.

Fourth-quarter adjusted earnings advanced 34% to $1.84, beating the consensus target by 7.4%. Its top-line figure, up 22%, exceeded expectations by 5.1%. Cummins is the fifth best-performing S&P 500 stock over the past year, having more than doubled during that span. Despite the outstanding performance, it remains fundamentally attractive. Its forward earnings multiple of 13 represents a 30% peer discount.

However, Cummins is expensive on the basis of cash flow, book value and sales per share. Goldman's latest missive, stressing an accelerated share buyback program as the stock's next catalyst, reiterated the bank's "conviction buy" ranking. In the fourth quarter, the float decreased 1% to 196 million shares, marginally boosting earnings per share. Goldman believes that Cummins, which currently receives nine "buy" calls and eight "hold" recommendations, can exceed incremental margin guidance. It will continue to profit from rapid emerging markets expansion.

The bank cites exposure to accelerating U.S. truck and power generation markets as a catalyst. Goldman recently boosted its 2011 profit forecast to $7.59. It predicts 2012 earnings of $9.15 and 2013 earnings of $10.25. Higher penetration in China will be a major driver to growth. But, material inflation presents a significant headwind and Goldman expects 200 basis points of higher costs from input prices. Expense-cuts should help offset this obstacle in 2011.

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