Engine issue Cummins Inc. (NYSE: CMI, Stock Forum) has been a broad-market standout, to say the least, besting its fellow S&P 500 Index (SPX) comrades with a gain of roughly 140% in 2010. What’s more, the equity has outperformed the SPX by almost 12% during the past 40 sessions, guided higher atop its 10-day, 20-day and 50-day moving averages – a trend line trio that hasn’t been breached since late August. In fact, the security just today extended its recent quest for new highs, topping out at a record $112.25 before pulling back with the broader equities market.
Plus, Cummins has flexed some fundamental muscle, too, especially since expanding into potentially lucrative overseas markets like China and India. In fact, sales in non-U.S. markets skyrocketed by 56% in the third quarter, accounting for 60% of the company’s total revenue. Furthermore, the firm in October boosted its 2011 sales forecast to $13 billion, representing a year-over-year increase of 11%.
Despite CMI’s impressive performance both on and off the charts, though, not everyone on the Street is convinced of the stock’s strength. On the International Securities Exchange (ISE), the stock has racked up a 10-day put/call volume ratio of 3.36, implying that traders have bought to open more than three CMI puts for every call during the past two weeks. What’s more, this ratio ranks in the 92nd annual percentile, indicating that speculators have initiated bearish bets over bullish at a quicker clip just 8% of the time during the past 52 weeks.
Echoing that trend, the security’s Schaeffer’s put/call open interest ratio of 1.35 suggests that puts comfortably outnumber calls among near-term options. In fact, this ratio stands in the 65th annual percentile, hinting at elevated levels of pessimism among the near-term options crowd.
Elsewhere on the Street, the brokerage bunch also remains hesitant to board CMI’s bullish bandwagon. According to Zacks, eight out of 17 analysts still consider the stock a “hold” or worse. Likewise, Thomson Reuters pegs the average 12-month price target on the equity at only $109.69, representing a discount to the stock’s new record high set today.
Should the shares of CMI extend their long-term run into the black, an unwinding of skepticism among options traders or analysts could serve as a contrarian catalyst even higher for the security.
Disclosure: Andrea Kramer has no financial interest in any of the equities or products mentioned in this column