Caterpillar Inc. (CAT), Cummins Inc. (CMI): Companies for a Gasoline-Free World

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What are the main differences between a diesel engine and a gasoline one? Both are internal combustion engines, but the combustion occurs in different ways.

In a gasoline engine, fuel is mixed with air, compressed by pistons, and then ignited via a spark plug. On the other hand a diesel engine compresses the air first, thereby heating it up, and then the fuel is injected. When fuel comes into contact with the hot compressed air, it ignites and powers the engine.

Both normally run on petroleum based diesel, although diesel fuel can be created using other sources. Researchers at the University of Nevada-Reno have successfully produced biodiesel from used coffee grounds.

Diesel engines are initially more expensive than their gasoline counterparts. However, they are much more durable, and can typically run for much longer without needing repair or replacement. Another difference is that gasoline engines typically have more horsepower, while diesel engines have more torque. That means that while a gasoline engine can accelerate faster, diesel engines are indisputably better suited for moving heavy loads.

Caterpillar Inc. (NYSE:CAT)

One of the Dow’s cheapest stocks

Caterpillar Inc. (NYSE:CAT) said in its latest annual report that it is the world’s leading manufacturer of diesel engines. Sales of diesel engines are a part of its energy & power systems segment, which accounted for approximately 32.1% of 2012 revenues.

As the global economy goes, so goes Caterpillar Inc. (NYSE:CAT). The stock has been fairly volatile in recent years. Bad macroeconomic news can send it down, and vice versa. But when this stock gets hammered, it presents investors with an opportunity to pick up a high quality company at a reasonable price. Caterpillar Inc. (NYSE:CAT) currently sports a P/E ratio of 11.68, well below the DJIA average of 17.7. The balance sheet looks solid with working capital of $13.71 billion and equity of $18.3 billion.

Caterpillar Inc. (NYSE:CAT) currently yields a dividend of 2.8% of its recent stock price, with a very reasonable 27% payout ratio. The dividend history is also solid — the company’s Investor Relations section of its website has dividend data going back to 1996. Since then, on a split-adjusted basis, the company has never lowered its dividend. In those 17 years dividends have grown at a CAGR of 11.1%.

When I think of diesel engines

I think of Cummins Inc. (NYSE:CMI). This company is one of the top players in the global market for diesel and natural gas engines. It should be a major beneficiary of the impending shift away from gasoline powered engines. The company has received a multitude of awards for things ranging from environmental responsibility, to its commitment to conducting business in an ethical manner.

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