Hedgeye CEO Keith McCullough is adding Cummins (CMI) to the short side of Investing Ideas. Below is a brief note.
Looking for ways to broaden your exposure to #Quad4 in Q3 via the Indusrtrials (XLI)? Our Industrial Analyst Jay Van Sciver's latest timely SELL calls (Institutional Research product) has been Cummins (CMI). It's bouncing to lower-highs on #decelerating volume like most things this week too.
Here's a summary excerpt from Jay's independent research view:
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While we get the bull arguments for CMI, from aftermarket to emerging markets, we see too many business and narrative headwinds going into 2020. Cyclicals have a way of genuinely looking ‘cheap’ when in fact expensive; we think shares of CMI are pricier than longs believe. We are removing PCAR as a Best Ideas Long, taking a modest win in the face of declining freight volumes and truckload pricing. We very much like PCAR but want to avoid riding it down during an increasingly obvious industrial deceleration. As for CMI, a deceleration in activity may adversely impact the profitability of suppliers to capital equipment makers. Added to short-term and long-term structural headwinds, as well as fewer emission-related content opportunities in CMI’s key North American market, the next couple of years may prove unusually challenging for CMI. We think the shares have >40% downside risk, with catalysts ranging from truck order backlog drawdowns to high decremental margins in key engine markets. |
Sell on green (so that you dont have to panic on red),
KM
