Diesel Driven Gains: Caterpillar Vs. Cummins Inc.

Includes: CAT, CMI
by: Colin Lea

Two stocks performing strongly in current markets, if not bucking the trend, are Caterpillar Incorporated (NYSE:CAT) and Cummins Incorporated (NYSE:CMI). CAT is primarily focused on servicing the global mining and heavy moving industry, but is also a designer and seller of diesel engine systems; while CMI’s main focus is as a designer, manufacturer, seller and maintainer of diesel engine systems worldwide.

Both companies are iconic entities within their respective fields, and consumers of the products are staunchly CAT or Cummins biased. This ensures a loyal customer base respectively, which drives company sales on a continuing basis. They have dedicated industries heavily reliant on their products, including mining companies, earthmoving companies, and the trucking transport industry. Cummins has a solid reputation built on delivering consistently over time, and CAT is well known for its after sales and through life support, offering reliable maintenance and spare parts support anywhere in the world 24/7.

Caterpillar. CAT closed today at $85.41, up $2.43 (2.93%), and is currently trading at 6.8% above its five day low. It is trading at a significant discount, $30.68 (26%) below its 52 week high of $116.09, with a PE of 13.70 and a Market Cap of 55.17 Billion.

Cummins. CMI closed today at $86.65, up $2.50 (2.97%), and is currently trading at 8.3% above its five day low. It too is trading at a significant discount, $34.18 (28%) below its 52 week high of $120.83, with a PE of 11.00 and a Market Cap of 16.86 Billion.

Both companies service similar, yet different industries at the same time. Less market capitalisation, their base financials are trading very similar at present. CAT’s CEO was recently quoted in Forbes Magazine, outlining how the company has prepared for, and geared itself for, being able to continue working profitably during periods of significant economic downturn. The current market conditions are offset by the strong performance of resource companies and their reliance on CAT’s product lines. CMI has likewise been lauded for its strong performance over recent years, delivering good products and a sound financial bottom line, which is continuing during the current difficult market conditions.

For the longer term investor wishing to add to their portfolios, I would choose CAT over CMI if I was after a singular stock from a heavy diesel manufacturer. First, I consider CAT to be a more diversified manufacturer – they offer diesel engines for transport and power generation (like CMI), but they also have their own specific product line of heavy earth moving equipment (unlike CMI), which supports not only the global mining industry, but also earth moving companies from independent contractors to local governments. Their market capitalisation is also significantly stronger. Finally they are better supported by their people and their products and their after sales support than Cummins is. This is a personal assessment from someone who has utilised, and been reliant upon, both companies’ products in some of the harshest conditions around the globe. If it were my own money, I would be tipping it all in to CAT over CMI.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Disclaimer: This information is general advice only and you should seek independent financial advice before making any individual investments.