Betting on the industrial sector can be tough.
For one, the sector is cyclical. For investors, that can mean high volatility as companies within this space turn hot, then cold, then hot again, from quarter to quarter.
For another, there’s China.
As a manufacturing giant, when China slows – or when any analyst mentions “China” and “slow” together – industrial stocks get jittery. And there’s been a lot of this talk lately, as GDP growth in the country has slipped well under 8%.
Yet, there are still great industrial sector plays to be had for investors able to spot the best industry-specific trends.
We’ve done just that in Boom & Bust and Cycle 9 Alert recently.
Investing in a true “Made in America” manufacturer led Boom & Bust subscribers to 25% gains since last September. I recently recommended buying more shares of this company just two weeks ago… and since then we’ve grabbed another 6%.
Cycle 9 Alert too has taken advantage of the recent upswing in industrial sector stocks. My most recent recommendation – a play on industrial automation – is up 80% in less than one month!
Of course, we encourage you to join these research and trading services. That’s where you’ll receive all of my investment research and actionable recommendations.
That said, I’m inclined to give you a “freebie” today… a long-term industrial sector play that could see gains of up to 134%. But you’ll need to be patient. It could take 18 to 36 months before the full extent of these gains are realized.
The stock is Cummins Inc. (NYSE: CMI).
The reason it’s a shoe-in is simple: Natural gas is reigniting industrial growth like the U.S. hasn’t seen in decades.
It won’t benefit all manufacturers evenly, and that’s why it pays to bet on Cummins, the early leader in the race to outfit hundreds of thousands of vehicles – from cars to commercial truck fleets – with engines that run on compressed natural gas.
Cummins’ stock is a classic example of “technicals leading fundamentals.” Meaning, my technical analysis of Cummins’ stock price shows investors believe in the company’s growth potential, even if the numbers aren’t yet showing in quarterly reports (revenue and income growth has been flat).
Here’s a chart of Cummins going back to 2009. Don’t worry about the Xs and Os. This is a Point & Figure chart, which I’ve used because it provides a great method of forecasting price targets. I’ll discuss these below.
First, take note of how well Cummins’ shares have done since 2009. They’re up 510% in a little more than two years.
After trading sideways since 2011, this stock is on the verge of a bullish breakout. One method of determining how high the next advance will be is to simply measure the move that preceded the consolidation period. That was from $20 per share to $120 per share.
Add that $100 per share gain to the top of the consolidation range ($120) and we get a long-term upside target of $222 per share, or 82% higher.
Point & Figure methodology gives me another way to forecast short-term and long-term targets. I’ll spare you the tedious explanation and math and cut straight to the targets…
Short-term, Cummins’ stock should reach $158 per share on its next leg up. That’d give us a respectable gain of 30%, which I see achievable within the next six to 12 months.
Longer-term, the target is much higher. The fact that Cummins traded sideways for so long, while still maintaining a bullish bias with support in the $85 range, suggests the stock is building a base for a massive run higher… to as high as $285 per share, or 134% above current prices. This is the move that could take up to three years to unfold.
So sure, it will take a while before Cummins is trading in the $200s. Just as it will take a while before CNG-powered vehicles are viable and generally accepted. And that’s why I’ll be clear – this is a long-term play!
And, it’s a long-term trend that could be put into pregnant pause when any number of global risks trigger the next broad stock market crash. Harry expects to see this unfold between now and the first six months of 2014 (a point he’ll discuss with you in more detail in the next couple of weeks). But don’t worry. I’ll issue “get out now” alerts whenever this comes to fruition. That’s a given. In the meantime, don’t let fear keep you from making good money.
With the industrial sector what it is, expect some ups and downs as the business cycle waxes and wanes. Yet, you can expect to be rewarded handsomely for your patience. Assuming the natural-gas market continues to develop as it has over the past decade (and I see no reason for it to change), the next 10 years are sure to be a boom for industrial companies that fit into the natural-gas niche.
Your portfolio will thank you for investing early in natural-gas stocks that have promise, like Cummins.
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