Cummins Inc. (CMI) #1 [5]

Cummins, Inc. engages in the design, manufacture, distribution,
and servicing of diesel and natural gas engines, electric power
generation systems, and engine-related products. It operates in
four segments: Engine, Power Generation, Filtration and Other,
and International Distribution. The Engine segment manufactures
and markets a range of diesel and natural gas-powered engines
for the heavy and medium duty truck, bus, recreational vehicle,
light-duty automotive, agricultural, construction, mining,
marine, oil and gas, rail, and governmental equipment markets.
It offers a variety of engine products with displacement from
1.4 to 91 liters and horsepower ranging from 31 to 3,500. The
Power Generation segment provides electric generators; power
systems; and related accessories, components, and services.
These products include diesel and gas generators used in
recreational vehicles, commercial vehicles, and pleasure boats,
as well as diesel and gas generator sets, transfer switches,
and switchgear used in commercial facilities for emergency back-
up and prime power.

Demand for Cummins' engines has been robust recently due to a
strong cyclical upswing in truck sales. Having purchased loads
of trucks in the late 1990s, operators are starting to update
their aging fleets. Also, operators are starting to buy trucks
in advance of 2007 emissions legislation that will increase
costs and may reduce engine performance. This is providing a
substantial, though temporary, boost to Cummins' sales.

The company reported an excellent fiscal second quarter, in
which they posted $2.83 per share, significantly ahead of the
$2.41 Zacks consensus. They also raised guidance for the full
year, going to a range of $10.10 to $10.30, up from the
previously forecasted $9 to $9.20 per share. They are seeing
strength in their engine business as sales of heavy duty truck
sales advanced by 30% due to strong domestic and international
demand. Their power generation segment also performed well,
growing by 7% to $493 million. The company has improved its
cost structure as well, enabling it to convert more of its
sales into profits.

Cummins shares are very attractively valued at about 8x their
new forecasted earnings per share for this year. Estimates have
gone up significantly over the past 90 days. Over that time
period, estimates for the year ending December 2005 have
increased from $9.10 to $10.40 per share. That is an increase
of 14.3%, which is impressive given the company's size. The
stock could experience multiple-expansion due to strong
earnings momentum.

AstraZeneca (AZN) #1 [9]

AstraZeneca (AZN) engages in the research, development,
manufacture, and marketing of prescription pharmaceuticals, as
well as the supply of healthcare services worldwide. It
provides medicines designed to fight disease in areas of
medical need, such as cancer, cardiovascular, gastrointestinal,
infection, neuroscience, and respiratory. The company recently
received FDA approval for Arimidex to be used in breast cancer
treatment.

Perhaps the strongest of all AstraZeneca drugs is Seroquel (for
schizophrenia). Seroquel continues to gain market share against
its chief competition Zyprexa (Eli Lilly), Risperdal (Johnson &
Johnson), and Geodon (Pfizer). The U.S. Food & Drug
Administration (FDA) approval the drug last year for bipolar I
disorder (recurring episodes of mania and depression), and an
increased dosing cycle approval to a 12-week regimen. We are
optimistic on future trends for Seroquel throughout 2005. The
company will likely ring up total sales of nearly $2.7 billion
in 2005, growing to over $4 billion in 2008.

Recent second quarter 2005 earnings were far above expectations.
The company posted upside of nearly $250 million in revenues.
Strong products such as Seroquel (schizophrenia), Arimidex
(breast cancer), Casodex (prostate cancer), Symbicort
(asthma/COPD), and Crestor (cholesterol) all outpaced consensus
forecasts. The company raised earnings guidance for the full
year to $2.75, well above the previous range of $2.35 - 2.50.
We see continued upside from strong drug sales flowing into the
third and fourth quarter.

AZN's valuation is attractive given the superior growth rate.
We see AstraZeneca being able to deliver a four year CAGR of
16.4%, significantly above that of all other large-cap
pharmaceuticals (ex. Schering-Plough). Strong bottom-line
growth is driven by a combination of growing revenues,
moderating operational costs and aggressive share buybacks. The
stock currently trades at 17.4x 2005 EPS.

The company is also working on reducing costs to drive
profitability beyond 2005. AZN should continue to see selling,
general and administrative (SG&A) costs decline as a percent of
total revenue for the next several years. Additionally, gross
margins should continue to expand, given the ramp in key
blockbuster products. Share buy-backs are also a significant
driver of the bottom-line. The company has $3 billion in buy-
backs authorized for the next year.

All of these factors contribute to AstraZeneca's earnings
momentum. The company has surpassed expectations for five
consecutive quarters. It's Zacks #1 Rank not only reflects the
most recent positive earnings surprise, but also the sustained
increased in earnings estimates. Analysts have raised their
full year forecasts by 9% over the past 60 days, with the
consensus estimate most recently being revised upwards by two
cents over the past seven days to $2.68 per share.