4 Reasons To Buy Cummins To Depression Proof Your Portfolio
With new cases of the coronavirus spiking in the US and worldwide.
With the already historic unemployment levels and job losses in recent months.
And with many Blue Chip stocks looking vulnerable when they’re supposed to be among the best areas to invest your capital.
There are few safe places to invest your capital today. And this number is growing smaller every day this crisis lasts.
The key to continue compounding your investments and build wealth is to keep investing well over time.
Most people think the number one way to do that is to invest in assets that will grow your capital over time.
And this is huge part of things.
But another huge part of this is also losing as little capital as possible.
The fewer investment losses you have the more capital you keep. And the more capital you keep the faster you can invest well to grow your wealth.
In recent articles I’ve shown you several stocks to avoid investing in…
- 3 Reasons To Avoid American Airlines Stock
- The Most Dangerous Stock In The World
- 3 Reasons To Avoid Wynn Resorts Stock
- 4 Reasons To Avoid Norwegian Cruise Lines Stock
Today, I want to show you 5 Reasons To Buy Cummins To Depression Proof Your Portfolio.
Cummins (CMI) is a leading manufacturer of diesel engines use in commercial trucks. And it also supplies engines for railroad locomotives and diesel-powered electricity generators.
Based in Indiana it has a $25.6 billion market cap company and it pays a 3.1% dividend.
This is reason #1 to buy CMI to help Depression Proof Your Portfolio.
CMI’s 3.1% Dividend
Over the last decade CMI’s paid out a total of $30.12 per share in dividends.
At today’s share count of 154 million shares that’s equal to $4.64 billion paid out to shareholders in the last decade.
These dividend payments will help you in normal times earn cash if you take the money out. Or allow you to buy more shares over time if you reinvest the dividends.
Both help you earn higher returns over time and will especially help in any kind of prolonged economic issues like we’re dealing with today.
It can do this because it earns huge profits. Which is reason #2 to buy CMI to Depression Proof Your Portfolio.
CMI Earns High Profits
Over the last decade it earned an average operating income margin of 10.5% per year on average.
I look for anything above 10% on a consistent basis so CMI surpasses this number.
Because after evaluating thousands of companies over the last 13+ years of my career I estimate fewer than 5% of all companies in the world produce consistent operation profit margins above 10%.
This makes CMI a great operating business.
But it also means the company earns enough money from its operations to continue investing in the business for growth… Without having to issue debt or equity.
Another way to show this is with its free cash flow to sales ratio (FCF/Sales). Over the last decade its 7.2% per year.
I call this the “Cash Machine” metric.
I look for anything above 5% on a consistent basis for the same reasons as I look for high operating profit margins above.
If companies are consistently above 5% on this number, it makes the company a cash machine that spits out more and more cash from its operations.
CMI surpasses my thresholds on both important metrics and that make it an incredibly safe investment.
These profits also allow it to continually reinvest in operations. And to pay you a large dividend as well.
Its large profits and cash flow and growing dividend payments over time make CMI a safe income play in whatever is to come in the next few months or years.
But these profits also allow another layer of safety in the amount of debt the company has which is reason #3.
CMI’s Low Debt Levels
With CMI being a multibillion company, you’d expect it to have debt.
And it does… But its debt levels are extremely low compared to its profits and the equity in the company. This makes CMI an even safer investment.
As of this writing its debt/equity ratio is 0.27. I look to invest in companies with numbers below 1 on this metric.
Because the lower debt levels the company has means the lower chance it has of going bankrupt. And this make it a safer company.
Generally, the more profits and cash flow the company produces the higher its debt levels can be without becoming problematic.
This gives the company a ton of options in how to run and grow the business. Which further allows the company to work in creative ways to continue growing revenue, profits, and cash flows.
This cycle gives companies enormous advantages AKA optionality.
This is especially important for Cummins because the industry it operates in is getting hit hard by the coronavirus currently.
Orders for new trucks are way down from this time last year due to lower overall demand and trade associated with the coronavirus shutdowns and people choosing to stay at home more.
But Cummins low debt levels protect it well to survive and thrive during this time.
Another reason to consider buying CMI to Depression Proof Your Portfolio is because it’s cheap.
CMI Is Cheap
This is reason#5…
With the markets at or near all-time highs you’d expect a fantastic stock like CMI to be selling at an enormous valuation.
But it’s not.
As of this writing its P/E is 15.9.
And its P/CF is 10.6.
On both metrics I look to buy investments below 20 for them to be considered undervalued.
And CMI’s current valuations fall well below this number putting it into the cheap valuation category.
This means CMI stock offers you a margin of safety in investing terminology.
A margin of safety means you’re buying a safe investment… And this makes the investment even less risky.
If you’re looking for a solid, safe, stable, dividend paying, cheap, and enormously profitable investment to Depression Proof Your Portfolio – consider investing in Cummins.
Click here to see some of the other stocks we recommend to Depression Proof Your Portfolio.
- 5 Reasons To Buy British American Tobacco To Depression Proof Your Portfolio
- 3 Stocks That Will Earn You High Returns In The Coming Depression.
- 3 Stocks To Depression Proof Your Portfolio – Stock #1
- 3 Stocks To Depression Proof Your Portfolio – Stock #2
- 3 Stocks To Depression Proof Your Portfolio – Stock #3
Disclosure – Jason Rivera is a 13+ year veteran value investor who now spends much of his time helping other investors earn higher than average investment returns safely. He does not have any holdings in any securities mentioned above and the article expresses his own opinions. He has no business relationship with any company mentioned above.