Cummins (CMI) Stock Storming The Castle Today

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer.

Trade-Ideas LLC identified Cummins ( CMI) as a "storm the castle" (crossing above the 200-day simple moving average on higher than normal relative volume) candidate. In addition to specific proprietary factors, Trade-Ideas identified Cummins as such a stock due to the following factors:

  • CMI has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $249.1 million.
  • CMI has traded 1.2 million shares today.
  • CMI is trading at 1.71 times the normal volume for the stock at this time of day.
  • CMI crossed above its 200-day simple moving average.

'Storm the Castle' stocks are worth watching because trading stocks that begin to experience a breakout can lead to potentially massive profits. Once psychological and technical resistance barriers like the 200-day moving average are breached on higher than normal relative volume, the stock is then free to find new buyers and momentum traders who can ultimately push the stock significantly higher. Regardless of the impetus behind the price and volume action, when a stock moves with strength and volume it can indicate the start of a new trend on which early investors can capitalize on. In the event of a well-timed trading opportunity, combining technical indicators with fundamental trends and a disciplined trading methodology should help you take the first steps towards investment success.

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More details on CMI:

Cummins Inc. designs, manufactures, distributes, and services diesel and natural gas engines, and engine-related component products. It operates through four segments: Engine, Distribution, Components, and Power Generation. The stock currently has a dividend yield of 2.3%. CMI has a PE ratio of 14.8. Currently there are 12 analysts that rate Cummins a buy, no analysts rate it a sell, and 7 rate it a hold.

The average volume for Cummins has been 1.8 million shares per day over the past 30 days. Cummins has a market cap of $25.0 billion and is part of the industrial goods sector and industrial industry. The stock has a beta of 1.57 and a short float of 3% with 3.33 days to cover. Shares are down 4.3% year-to-date as of the close of trading on Thursday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Cummins as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, growth in earnings per share, increase in net income and reasonable valuation levels. We feel these strengths outweigh the fact that the company shows weak operating cash flow.

Highlights from the ratings report include:
  • The revenue growth came in higher than the industry average of 10.5%. Since the same quarter one year prior, revenues slightly increased by 6.7%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • CMI's debt-to-equity ratio is very low at 0.22 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.32, which illustrates the ability to avoid short-term cash problems.
  • CUMMINS INC has improved earnings per share by 16.9% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, CUMMINS INC increased its bottom line by earning $9.02 versus $7.91 in the prior year. This year, the market expects an improvement in earnings ($10.05 versus $9.02).
  • The company, on the basis of net income growth from the same quarter one year ago, has significantly outperformed against the S&P 500 and exceeded that of the Machinery industry average. The net income increased by 14.5% when compared to the same quarter one year prior, going from $338.00 million to $387.00 million.

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