Why We Are Selling Our Position in Cummins (CMI) and Turning to Air Products and Chemicals (APD)
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Why We Are Selling Our Position in Cummins (CMI) and Turning to Air Products and Chemicals (APD)

Here at TheFrugalFella.com we always emphasize the importance of stability and reliability in the companies we invest in. Our primary goal is to own businesses that can consistently grow their earnings and dividends. In light of recent events, we have made the decision to sell our position in Cummins Inc. (NYSE: CMI) and replace it with an investment in Air Products and Chemicals (NYSE: APD).

Lack of Trust in Cummins’ Management

Our decision to divest from Cummins centers fundamentally on a profound loss of trust in its management and board of directors. This mistrust stems not just from the recent $1.675 billion penalty related to emissions control circumvention but from the broader implications of such actions on corporate governance. The installation of defeat devices suggests a willingness to prioritize short-term gains over lawful and ethical conduct. For a company to deliberately engage in practices that flout environmental regulations raises serious questions about its leadership’s judgment and commitment to legal compliance.

Furthermore, the reaction of Cummins’ management to these allegations – opting for a settlement rather than defending their case – adds to our concern. It suggests either an acknowledgment of the missteps or an aversion to transparency in dealing with such critical issues. For us, trust in a company’s leadership is paramount. This trust is the foundation upon which we assess a company’s ability to navigate challenges, uphold shareholder interests, and sustain long-term growth. The apparent breach of this trust by Cummins’ management has led us to reconsider our investment in the company.

Financial Stability and Cummins’ Setback

The financial implications of Cummins’ recent legal troubles are significant and far-reaching. Firstly, the substantial $2.04 billion charge to settle the emissions scandal represents a major financial strain. This amount, nearly equivalent to a year’s worth of the company’s GAAP earnings, could have been allocated towards growth initiatives or dividend payments – crucial aspects for a company’s ability to compound earnings over time.

Moreover, the potential for a recall of approximately one million RAM 2500 and 3500 trucks, as a part of the settlement, poses additional financial burdens. The costs associated with recalls – from logistics to repairs – can be substantial, impacting the company’s short-term profitability and cash reserves. There’s also the potential for ongoing regulatory challenges and increased scrutiny, which could lead to further fines or operational constraints.

These financial and operational challenges are not just a temporary setback; they indicate a deeper issue in Cummins’ risk management and decision-making processes. For a company that needs to be consistently reliable and growth-oriented, such vulnerabilities can significantly hinder its ability to deliver stable returns and grow dividends over time. The combination of legal, financial, and reputational risks stemming from this scandal has led us to question Cummins’ future growth prospects and financial stability, prompting our decision to seek more secure investment opportunities.

Our New Investment: Air Products and Chemicals (APD)

In place of Cummins, we have chosen to invest in Air Products and Chemicals. APD is a leading industrial gases company, known for its production of atmospheric and process gases and related equipment. The company serves a wide range of industries, including refining, chemical, metals, electronics, and manufacturing. We believe that APD’s diverse product portfolio and consistent financial performance align well with our investment philosophy centered on stability and long-term growth.

Conclusion

Our decision to move away from Cummins and invest in APD reflects our commitment to owning companies with strong, trustworthy management teams and the potential for consistent long-term growth. At TheFrugalFella.com, we understand that the foundation of successful investing lies in trust and reliability, and we will continue to guide our readers towards making investment decisions that align with these principles. This transition from Cummins to APD is a strategic move to ensure that our investments remain aligned with our core values of trust in management, financial stability, and long-term growth potential. We remain dedicated to providing insights and guidance that help our readers build a robust and reliable investment portfolio.

Road To $1 Million

Start Date: 04/17/2023

As of 04/19/2024:

  • Portfolio Value: $26,682
  • Left to reach $1M: $973,318

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