Might Want to Catch These Post-Downgrade

 | Oct 29, 2013 | 10:47 AM EDT  | Comments
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Mining equipment, and now farm equipment, are both getting hit and hit hard Tuesday. First there's Cummins (CMI), which makes huge engines, some of which are used for mining -- a call-out in the release. Then AGCO (AGCO) missed estimates, and its shares have just gotten hammered.

I think this is part and parcel of the great commodity deflation in the system we are seeing right now, be it in corn, which is down 40% year over year; gasoline; or any of the different kinds ore. All of these have been hurt pretty badly this year.

So often we think about a thesis and we put our chips in the game on it, particularly on the short side, and it doesn't pan out. But, for once, if you had monitored the end markets for the heavy equipment, you actually would have caught a good short for Caterpillar (CAT), Cummins and AGCO. I am very surprised that Deere (DE) is not losing ground.

We had an inkling that truck builds were coming down when we heard from Alcoa (AA), which took down its growth rate for trucks. But then Eaton (ETN), which is heavily involved in truck manufacturing, has now started to guide higher based on the recent order pattern. I wonder, then, if this selloff in Cummins might be reflective of past patterns -- and if, when the numbers are cut Wednesday morning by the research community, you'll catch a move intraday that could be a good base to start a position.

I am not saying it is overdone in the case of Cummins, because the stock is up a huge amount. I am saying that, once the estimate cuts are out of the way, you could have a decent turn into the next quarter.

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