Cummins is a profitable company facing some revenue growth issues that have probably weighed on the stock. The one year return is only 11%, though the three year return is almost 60%. Three years ago was 2010, and the market was just coming out of the darkness of 2008 and 2009. The growth problems it has been facing is not surprising. The economic recovery has been uneven, but Cummins Inc. (NYSE:CMI) is still profitable, net income ttm is $1.5 billion. This presents one of those opportunities to play the short-term weakness against the long-term potential.
Cummins is innovating with its JV with Westport. They have an engine that is out in the world being used. Cummins also has its normal operations that are likely to recover as the economy improves. Any threat that natural gas posed to Cummins’ traditional business can be made up with its entry into natural gas. If push came to shove, Cummins could easily buy Westport Innovations Inc. (USA) (NASDAQ:WPRT) if it turns out that the engine has billions of dollars worth of potential. That is just to give you an idea of the scale of Cummins compared to its partner, not an attempt to be prescient. Right now, it seems more important to me that the engine is in operation and not the revenue from that business. During this ascension of the cleaner fuel, Cummins Inc. (NYSE:CMI) has its oil-based engines chugging along.
Conclusion
I would avoid Westport Innovations Inc. (USA) (NASDAQ:WPRT) until there is more positive news regarding the company exiting its loss-making growth phase. Cummins should be lower than it is. Considering the falling revenue and net income, and the general temperament of the market when it comes to results like that, Cummins Inc. (NYSE:CMI) has proven surprisingly resilient. I would expect the stock to knife down. I would not buy it here, but any significant decline is a buying opportunity into the future. Clean Energy Fuels Corp (NASDAQ:CLNE) has a solid entry point right now, though it’s not great. The company is not undervalued or overvalued. It is accurate to call it a speculative investment, so treat it as such.
The article Natural Gas Keeps Rolling Forward originally appeared on Fool.com and is written by Nihar Patel.
Nihar Patel has no position in any stocks mentioned. The Motley Fool recommends Clean Energy Fuels, Cummins, and Westport Innovations. The Motley Fool owns shares of Cummins and Westport Innovations. Nihar is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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