Europe's economy is finally turning

This is undeniable after last week's conference calls. So many businesses and their CEOs noted that Europe has stabilized and is improving.

By Jim Cramer Jul 22, 2013 9:54AM

thestreet logoHow many companies have to say that Europe has bottomed or has turned up before people realize the turn is occurring? If you were on last week's conference calls, I think the answer would have been obvious: The turn is at hand, and it could be a big one -- so big that it might serve as a substantial reason that the internationally oriented stocks simply aren't coming in.

 

Because, after last week's calls, they shouldn't. The evidence is that compelling.

 

At this point, so many people are skeptical about Europe and any prospective turn that it is almost impossible to get through the din of negativity. It is true that, for years, Europe was doing the wrong thing. It raised rates twice; it didn't adopt aggressive easing; and it went for austerity, except when it came to expensive subsidizing of uneconomic renewable energy.

But that's changed. The European Union is now as aggressive as the U.S. Federal Reserve. While austerity is still the theory of the day, there are so many signs of improvement that the easing is clearly trumping the austerity measures. Plus, the borrowing costs have come so far down, and the banking situation is so much improved -- even as we scoff at it -- and the political situation so much more solid, that it is a natural that something good could be happening.

 

The shock is that the good could be so widespread.

 

But the skeptics demand more. They think the aggregate data are soft enough to suggest that nothing good is happening. I personally don't give a darn about the aggregate data. It is something for the economists to argue about. Plus, euro-hating is so convenient for the angry right-wing folks in the media that they will be determined to dismiss any turn. That's because these people don't care about trying to help you make money -- this is not top of mind, usually because they have made theirs already.

 

So, in the interest of empiricism, let's go over what was said about Europe by the big international companies that reported last week.

 

Let's start with General Electric (GE), which was particularity hard-hit by Europe and has bemoaned it seemingly forever. CEO Jeff Immelt, perhaps one of the gloomiest souls toward Europe said many times on his call that Europe has, and I quote, "stabilized." He said for the first time he sees "signs of life" in Europe, notably in the U.K., France and Northern Europe. The health care business, which had become a black hole in Europe, showed the first positive order flow in three years. What was one of the reasons why the stock reacted so positively to the quarter? "We had, obviously, a big improvement in Europe in the orders," across the board.

 

Honeywell (HON) chief Dave Cote was a tad more circumspect on his call, saying that he is "not ready to declare victory on this one yet." But, he added, "It's been encouraging to see so far." This, from a company big into autos and aerospace and climate controls.

 

Europe (© Photodisc/SuperStock)Chuck Bunch, on the other hand, was effusive when he looked at what caused a better-than-expected quarter at PPG Industries (PPG) -- namely, a turn in Europe. "We think we've stabilized, and the comparables should get better" from here. When a skeptical analyst questioned this turn call, particularly when it comes to auto coatings, Bunch said that he is hearing the same things in Europe that he had heard at the bottom in the U.S. -- namely, that the auto build would never come back again and would be at permanently low levels. In the U.S., that was when we were building 9 million cars. We will now more likely hit 16 million. Bunch says Europe is just a little far behind us.

 

Bunch also said he sees a "fairly consistent pace of business in the region and a few of our businesses did achieve volume growth in that region this past quarter." Most important, he saw 8% growth in coatings on the continent, a very big increase.


Ingersoll Rand (IR) has a gigantic automotive and heating-ventilating and air-conditioning business in Europe, and it attributed much of the strength in the quarter to surprising growth in Europe -- so surprising that it sent the stock to the stratosphere. What happened? Here's a sample comment from the call: "I think we have low expectations for Western Europe, and they're better than what we have thought." The company saw "strength," -- their word, not mine -- in climate controls for the first time in ages on the continent.

 

Perhaps the most effusive industrial was another company that had been held back by Europe: Johnson Controls (JCI). Consider this gem: "Our European automotive business turned profitable" and the company had 4% growth in its building efficiency business, which it said was "a real surprise." The company says it expects to see "good sequential improvement" in its hard-hit auto business, which will make the year finish stronger than expected.

 

It's not just industrials. VF Corp. (VFC) saw strength for its offerings in a host of European countries, including Germany, Poland, Austria and Switzerland. VF was also very positive on the U.K., making it one of many companies citing strength in that country. The U.K., if you listen to these companies, may be catching up to the U.S. when it comes to growth.


But perhaps the best tale of the turn came from Manpower (MAN) the temporary-employment company with 64% of its business in Europe. This was an amazing European quarter for the company, and I quote: "Revenue exceeded expectations due to modestly improving trends in France, Italy and Spain." This was the first company to talk directly about business improving in Italy, with this quote: "Revenue in Italy was $278 million, which was flat with the prior year in constant currency," and, with that, the company said "We seemed to have hit the bottom in Italy as we have witnessed notable improvements in year-over-year growth trends compared to the 2 last quarters."

 

Finally, the most encouraging statistic from last week? That would be SAP's (SAP) declaration of a bottom in Spain, where business is now improving in double-digits. Now, you bring in SAP to streamline employment, so you could say that ultimately Spain's 27% unemployment rate isn't going to go down because SAP's business is going up. I think the more important takeaway, though, is that the Spanish companies are actually spending money to bring in SAP. They sure weren't a few quarters ago, when Spain was in free fall. 

 

Now, what do we do with all of this? I think you can, of course, play European that make sense. You can do it with an ETF like the Vanguard FTSE Europe ETF (VGK), which tracks many of the best companies in Europe and sports about a 3% dividend. It sure hasn't done anything year to date, advancing from $49 to just $51, so I can't blame anyone for wanting to buy that. We are debating buying it for my Action Alerts PLUS charitable trust.

Or you can buy any one of the companies I have mentioned that have seen a turn. I am particularly impressed with what GE has to say, but Ingersoll Rand or Johnson Controls would get the biggest boost from Europe down the road, and they have now become go-to stocks in any decline. I am not a big fan of Manpower because that's a tough business, but it just jumped 11 points, from $54 to $65, in a couple of weeks' time.

 

The ultimate takeaway, though, isn't so much what to buy because of Europe. It's what not to sell because of Europe. So many companies have had their earnings kept back, and so many had been crimped by Europe, and suddenly that's just not happening anymore. It's a huge turn, and this is a continent with 600 million people, the largest market for China and a gigantic market for the U.S. Sure, China's in decline and, yes, Latin America's just so-so.

 

But Europe turning? Who'd a'thunk it?

 

Yet it is undeniable, and you would know it if you'd just listened to all of these calls and heard what the companies with boots on the ground have had to say.

 

Cramer

 


Jim Cramer is a co-founder of TheStreet and contributes daily market commentary to the financial news network's sites. Follow his trades for Action Alerts PLUS, which Cramer co-manages as a charitable trust and is long GE and HON.

 

 

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50Comments
Jul 22, 2013 10:45AM
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MSN is beginning to sound like a part of the the old politbureau.  Gotta all sing the same song now.  All together now.  Guberment is here to save the day!  The Internationals will all sing the anthem as well as they are those receiving the juice.  Small business, mom and pops, as well as everyone living on Main Street do not concur.   Most workers of the world are not sharing in your optimism as well Jim.  Nothing ever goes straight up or straight down.  We may see a little spark from time to time but c'mon what has appreciably changed?  The noose is taught around all developed economies, the debt boot is on the throat of the workers all around the world.  As unemployment continues, wages by design are caving as more and more folks settle for less just to eat and have some form of shelter.  And we see this as a positive?  Well wait from a very simple short sighted point of view this may be a glimmer of light or hope but for anything substantive it is but another way of buying more time until the inevitable.  We need consumer incomes to improve before anything positive should be considered and we have yet to see wages bottom in my opinion.  With the Internationals firmly in control of the political process one should be very, very, skeptical about any reading out of Wall Street. Soon they will need to begin arming these board rooms and their masters will barrricade themselves from the carnage they have created and no amount of BS will cover up their crime.  Without a solid consumer base and a commitment to economic responsibility none of these share prices will go anywhere on their own. $2 trillion a year in debt just to hang on by our fingernails and we are in turnaround mode? Lets remove the $2 trillion and then maybe talk about something good.  I must be the only one who sees this make believe land of debtor optimism.   But then again I'm not into boosting stocks.
Jul 22, 2013 2:17PM
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Youth unemployment in Spain is 50%, Greece is becoming a 3rd world country....... Europe is treading water, a corner turned..... I think not.  It will take a decade to turn a corner there.
Jul 22, 2013 10:07AM
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no.  europe isn't turning just yet. 

 

we closed 1/2 of two facilities there.  word on the street from the locals still left is things are pretty bad. 

 

we are seeing quoted prices for production parts is lower in europe than usa.  this appears to be a case of them being "hungrier" than the same suppliers in usa.  (amphenol for instance providing seriously lower prices in UK than their usa based counterpart). 

 

 

Jul 22, 2013 11:11AM
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Jimmy, it is not undeniable as you claim. Folks will buy that the Euro-zone has turned around when they see it. As of now, the unemployment figures say otherwise. As of now, the massive Debt that will only get  worse via a rise in interest rates says otherwise. Soaring Crude prices are denying your claims also Jimmy. The Euro-zone is only in the first stages of a worsening recession. Any false starts now will fade later. When the Global Feds lose control then the real Fun Starts. And it won't be the type of fun Jimmy thinks of.
Jul 22, 2013 2:14PM
Jul 22, 2013 1:17PM
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I guess the difference is those Chicago shooting were righteous........ he11, maybe the punks were wearing Zimmerman shirts............ Chicago - Land of the strictest gun laws. Maybe the latin kings and the crips are getting cranked up about a mexican getting away with shooting a black man.
Jul 22, 2013 10:53AM
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"While austerity is still the theory of the day, there are so many signs of improvement that the easing is clearly trumping the austerity measures."

 

I like Jim but am very disappointed in the view he expressed above. If austerity is bad and easing is good then logically there would not have been any problem in the first place. 

 

Please people, regardless of who you are, do not throw you money away on investing in Europe. At some point the financial smoke and mirrors will loose it's appeal and one of these economies will collapse.

Jul 22, 2013 1:46PM
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Can the people who comment stick to the article instead of this racist crap?
Jul 22, 2013 12:11PM
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Yes, we are up a bit today but be very cautious; manipulators cant wait to pull the plug and more crappy economic news today that they love to use as excuses...Again, if the market were correlated to the economy the Dow wouldn't be at 15,500, it would be at about 8, 500...Be careful..More later.
Jul 22, 2013 1:43PM
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One of the few things I know for sure is that if Cramer says it it isn't true!
Jul 22, 2013 4:21PM
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Full Disclosure
I drive a 2003 Grand am GT...... 
My wife drives a 2011 Ford Edge
Not sure where on the scale of rich guy to beggar I fall because of this, nor do I give a single f_k.
Jul 22, 2013 11:03AM
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And before any of  you buy cramers newsletter call them and ask hom what the returns are since 2001 ......

Trust me you will laugh your **** off that he is charging $700 a year !!
Jul 22, 2013 11:35AM
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More "data", huh, Jim? Try calling a "European". There is NO economy there. At least nothing you'd track on "data". Your world is ending. Ours is going bust.
Jul 22, 2013 12:12PM
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"MSN is beginning to sound like a part of the the old politbureau.  Gotta all sing the same song now.  All together now.  Guberment is here to save the day!"

 

The only problem is-- government isn't behind it... inherited wealth is. I dare you... with all your wisdom and intelligence to explain why periodically elected Officials want a shrinking economy, unsubstantiated currency, businesses that do no work and don't hire and a legally-colluding financial sector as their boss.

Jul 22, 2013 7:33PM
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We were able to hang in there, barely. oh well, like we always say, a flat day is a good day....Get ready for tomorrow though. you know these crooks will come out swinging....We will find out soon enough.
Jul 22, 2013 10:59AM
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Now onto cramer .......I thought you were educatad at Harvard ?

Do you have any understandiing of what "empirical research" is ?  I think not all you are doing is giving "anecdotes" which makes what you say "anecdotal evidence" .....

Don't worry your little nephew monicAA rolaid pack dick will soon be along to cup your balls for you.

:)
Jul 22, 2013 2:00PM
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Like we said earlier, remain cautious....At about 1330 hrs scumbags decided to start doing their thing so the Dow is back in the red....Still 2 long hours to go and we are trying to stay in the green...Doesn't matter how you look at it, the economy is not well, we are sure many people think it is and that that is why the market is breaking records....Nothing further from the truth, you have to be an uninformed individual to believe that...Oh well, we will see how this goes...More after the close.
Jul 22, 2013 12:43PM
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Barry, As long has they`re killing other blacks you should be thrilled.
Jul 22, 2013 11:02AM
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Just got to share this again from Friday. Off to work ...

MonicAA the  boss  can do what he wants .....up those basement stairs ..give his mom a playful slap on the @ss and ask for 7 burritos and 14 chimichangas and some chicken soup and dumplings ...(he is on a diet after passing the 425lb mark) ......

1.5 hours lunch then back down to the basement to see if anyone bid on his GI Joe with the strangely widened kung fu grip and his blow up doll "isis" that crawled over to the radiator to melt herself rather than suffer through his 2 inch rolaid pack dik anymore ....

Running an ebay business from your moms basement is hard work so don't be too hard on him (like his Uncle Jimmy was) 


Jul 22, 2013 10:57AM
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Now isn't that sweet monicAA  has clearly spent the weekend thinking about me .....

Now, now monicaAA I have explained to your before but I don't float that way ....so you will have to go back to craiglist and post your "straight but looking to experiment listing" .....don't worry the wife and kids will probably never find out you are a secret pole jockey as don't you line them up and make them call you a "real man" every night ?

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