Morgan Stanley’s Highest Conviction Stocks: Top 20 Stocks To Buy

15. Cummins Inc. (NYSE:CMI)

Share Price Upside: 13%

Number of Hedge Fund Investors In Q2 2024: 38

Cummins Inc. (NYSE:CMI) is a diversified industrial products company that sells engines, filters, generators, and other associated products. It is also a key player in the alternative fuel engine industry, as it develops engines that are capable of running on natural gas, hydrogen, and clean diesel. Cummins Inc. (NYSE:CMI)’s experience in the industry, as it has been operating since 1919 and its considerable financial resources, as evidenced by $2.7 billion in cash place it in a favorable position to capture the heavy transportation industry’s shift to clean energy. This is important since the Environmental Protection Agency (EPA) revised its emissions rules for truck engines in March 2024, which could open up the market for Cummins Inc. (NYSE:CMI)’s clean engine business. At the same time, the industrial focus of its products means that the firm is vulnerable to economic headwinds, and the key to understanding its business is the order backlog which provides future revenue visibility.

Cummins Inc. (NYSE:CMI)’s management commented on its other clean energy initiatives during the Q2 2024 earnings call:

“Also this quarter, we further progressed our partnership with Daimler Trucks and buses and PACCAR as we completed the formation of joint venture now known as Amplify Cell Technologies, to localize battery cell production in the in the battery supply chain the United States. This included naming the Chief Executive Officer of joint venture and breaking ground at a new manufacturing plant in Marshall County, Mississippi. Amplify Cell Technologies will enable Accelera by Cummins and our partners to advance battery cells focused on commercial and industrial applications in North America and serve our customers’ evolving needs.

This is a significant step forward as we continue leading our industry into the next era of smarter, cleaner power. And in July, Accelera was awarded $75 million from the Department of Energy to convert approximately 360,000 square feet of existing manufacturing space at our Columbus, Indiana engine plant for zero emissions components, including battery packs and electric powertrain systems. The $75 million grant is the largest federal grant ever awarded solely to Cummins and as part of the appropriations related to the inflation Reduction Act. The Columbus engine plant is also where we manufacture blocks and heads for our current and next-generation engine-based solutions, further showcasing our Destination Zero strategy in action. Now, I will comment on the overall company performance for the second quarter of 2024 and cover some of our key markets, starting with North America before moving on to our largest international markets.”