Did You Buy this Breakout?

On August 5 I alerted you to a breakout in progress. Did you make the trade?

The stock was Cummins Inc. (NYSE: CMI), a global leader in the manufacturing of diesel and compressed natural-gas engines.

Like Caterpillar, Cummins has muddled through a couple years of lackluster growth as China slowed a bit. The company’s fundamentals are by no means cringe-worthy, but they aren’t stellar either.

As I said on August 5: “Cummins’ stock is a classic example of technicals leading fundamentals.” And that’s how stocks are supposed to work. A stock’s share price is simply a collective estimate of the value of the company’s future cash flow.

And since Cummins’ business represents a direct way to bet on the developing natural gas trend, investors are clearly looking several years out, eyeing the massive potential of natural gas.

As an update, here’s a chart of Cummins’ stock this year.

See larger image

Up about 28% year-to-date, nearly half of that gain has come since August.

That’s when the stock made a bullish breakout of the sideways congestion pattern that had kept Cummins under $120 per share.

As I shared in my original alert, my first profit target on this stock is $158 per share and my second sits at $285 per share. But remember, this is a long-term play. It will likely take several years for the natural gas infrastructure market to fully gain traction. But when it does, Cummins will be the clear beneficiary.

If you’re into heavy machinery, but disappointed in Caterpillar’s waning mining business, consider adding this heavy-duty stock to your portfolio instead.

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Categories: Markets

About Author

Adam O'Dell has one purpose in mind: to find and bring to subscribers investment opportunities that return the maximum profit with the minimum risk. Adam has worked as a Prop Trader for a spot Forex firm. While there, he learned the fundamentals of trading in the world’s largest market. He excelled at trading the volatile currency markets by seeking out low-risk entry points for trades with high profit potential. An MBA graduate and Affiliate Member of the Market Technicians Association, Adam is a lifelong student of the markets. He is editor of our hugely successful trading service, Cycle 9 Alert.