Cummins (CMI) is this market right now. Here's a company that reported a magnificent quarter, has great international sales and thrives in the -heavy duty market in China.
And, it is smack in the middle of no man's land. It is down nine from its high, but up 36 from its low. It's up 31% year to date, which is way, way too much if China's slowing and our economy softens.
What the heck can you do with it? This stock is emblematic of many I follow. I told people on Monday that I would sell it, and the stock went up right in my face. I had not a clue why that happened. There were bids all over the place for the stock, and it was just desired around the street.
Turns out it was just plain wrong.
Now, there are no bids, and it looks like it is supported by nothing.
Same thing with Caterpillar (CAT) except, at least, that was going down in advance of this selloff and has lost a lot of ground. Yet, it is still up 17% for the year, which, again, is too high based on a China slowdown, and what they themselves have said is too high an oil price for them to blow out the numbers.
What do you do with CAT? With CMI? I know what I would do at my hedge fund. I would sell half at the opening tomorrow, and then hope that someone comes in and takes it up betting that the selloff is over.
Then I would sell the other half -- no matter what -- at the end of the day. The stocks rallied on pure momentum, everyone has a profit and there's nothing new that is going to come out. Maybe I would even buy some CMI March 110 puts for a buck or CAT 100 March 100 puts for $0.65, just for some ammo on another leg down.
If they had yield support, like Eaton (ETN), Nucor (NUE) or Emerson (EMR) or even Freeport (FCX), it would be a different story. But without it, these feel like Deere (DE), which has now given up almost its entire gain.
I am drawn to the 3%-plus yielders, as always, because you can pick at them and know they have floors. Even FCX held in the low 30s, and that was when its dividend was lower. EMR and Nucor aren't putting up the numbers I would like to see, but they represent decent intermediate to long-term value. Eaton's just a buy as we are saying for ActionAlertsPlus.
No man's land is a terrible place to be right now. For most people, the stocks I have just mentioned are too high to buy, but too low to sell.
I say sell some and then sell the rest. They have moved up too much, and while you may have missed the top, that's the hazard of the game. Giving up more performance from here? Sinful.
Random musings: Stephanie Link and I made some big moves today for ActionAlertsPlus that you might want to check out by clicking here.