There's hope yet for industrial stocks

Some recent big-name earnings may look gloomy, but sometimes a miss isn't a miss at all.

By Jim Cramer Jan 17, 2014 12:51PM

Financial Stock Chart © Kick Images, Photodisc, Getty ImagesIf PPG (PPG) and Alcoa (AA) are any indication, then industrials are the places to be.


Lots of people were bemoaning Alcoa's quarter last week, mostly because of the earnings miss. That was, alas, the totally wrong takeaway of the situation. What mattered was the inexorable and inevitable mix toward more value-added products coupled with lower-cost aluminum. It's a twofold process, and it's going well as the company grows relentless in its pursuit of becoming one of the world's lowest-cost producers.


Before the much-maligned Klaus Kleinfeld, it was one of the highest. Kleinfeld is making all of the tough moves, closing old smelters that had sentimental attachment to the previous management, always reminding us how non-business-like previous management was.


When the you get even the slightest inflection, whether it comes from Ford's (F) decision to go lightweight or Europe having a tick up for more than a month in car registrations, then you are going to see a bottom line that will shock you. You just haven't seen an ounce of leverage yet for the model, and that's because the lack of pickup in sales.The Street on MSN Money


But there's no doubt in my mind that every region in the world, save China, is doing better right now than six months ago, and that means when inventories are finally worked off and new, lower-cost facilities are in place, the amount of money that will be made off of a slight increase in sales could be shocking.


Don't forget why people really love industrials. When they get it right, they can beat estimates by 30%, 40% or even 50% if the analysts stay bearish.


PPG is just like Alcoa in my book. Did you notice how it immediately ticked down as if it had somehow blown the quarter? In fact, the quarter was pretty picture-perfect, with the shifting of the product portfolio to higher value-added products continuing and the M&A continuing to percolate.


Of course, the company has to be aghast that any analyst would actually, seriously be upset with that quarter. More importantly, this is the year when a huge part of PPG's business -- one-third of sales -- is about to turn. The conference call was laced with examples of European markets that troughed in a rolling way throughout the year, with the fourth quarter typically being the first good one in ages. PPG has cut and cut and cut and modernized and is now in a position, if I didn't know any better, to get about a 10% increase in profits from even a 1% increase in sales. Yes, it is that important.


Of course, we all look at things so statically. A week ago people were calling for Kleinfeld's head when he didn't deliver an upside to earnings, even as the cash flow was fabulous, the cash position bountiful, the balance sheet the best in years and the revenues quite strong.


Much of the business that has kept Alcoa back is in Europe. But I think Kleinfeld, who knows the European markets better than any American exec I know (remember that he ran Siemens), is saying that we are at that inflection point right now. That's how his stock can now be above where it was after the so-called disappointing quarter.


PPG and Alcoa, two companies that missed that didn't miss at all.


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 Action Alerts PLUS, which Cramer co-manages as a charitable trust, has no positions in the stocks mentioned.


Jim Cramer's Action Alerts Plus: Check out this charitable trust portfolio and uncover the stocks Cramer thinks could be winners.


More from TheStreet:

Jan 17, 2014 1:09PM
You pick, door number 1, 2, or 3.  Or maybe darts.  This is what you can bank on. This economy is really not expanding at all. There is no innovation. No new products or ideas. The contraction in this economy will in time spread around the world as American dollars will stay home to buy food and shelter. Present policies ensure future declines in profits and purchasing power. JMHO
Jan 17, 2014 1:09PM
What, no mention of your latest book signing in this article?  Poor Bobo, his agent probably locked him into a 2 hour signing commitment, which is a long time to hang around for 9 adoring and devoted fans, especially when 2 of those are homeless guys just looking to warm up...
Jan 17, 2014 2:17PM

Quote from story on states with most millionaires....." Nevada fell 20 spots to No. 39" ..


You better pretend to move again Beav.

Jan 17, 2014 1:56PM
Will Ford use the cheap dirty Chinese Aluminum for their trucks?
Jan 17, 2014 4:01PM
I'm betting that someone ran over Fatty Cakes in his box...Or they burned it and his Library Card.
Jan 17, 2014 2:50PM
We have about two hours to try to bring the S&P to the green. Easier said than done, especially after the village idiot spewed more lies and nonsense as usual...Wall Street cant stand the boob...Be cautious these last two hours, like we said, its easier said that done...More after the close.
Jan 17, 2014 3:31PM
Hello Bobo ...does you wife or any other members of your family run any charities?  I would bet that if they do that;s where you donated your AA "donations" !! 

Prove me wrong !
Jan 17, 2014 1:41PM
Industrials should do well in the long run with increased global demand for fuel efficient transportation, the energy revolution in the US, and a pickup in the global economy. AA looks interesting...
Jan 17, 2014 3:32PM

Happy Birthday Mrs First Lady ...Please tell your husband to keep up the good work and keep annoying these fat right wing neo con buffoons ...remember the more he raises their BP the fewer of them will be around in 2016.

Happy Weekend All .....  :)
Jan 17, 2014 4:05PM
Oh yeah, almost forgot Michelle's Birthday....HB MRO..arf, arf, arf.
Jan 17, 2014 1:40PM
madooff got caught and went to prison and cramer is still loose.......... so I guess that makes cramer number one
Jan 17, 2014 1:37PM
they pay the people and give them free books to pump up the image
Jan 17, 2014 8:07PM
A future Republican in the making.​​​​​om/watch?v=AukE2​5​i​s​p​VY

They are simply adorable and loving little things aren't they?
Jan 17, 2014 1:43PM
I love how this man stays busy, searching out the next big opporTUNA-ty.

Next big fish...FATCAT.

Happy weekend everyone.

Jan 17, 2014 4:14PM

Well CGT....Maybe I can help you learn something if possible..

"Village Idiot", hardly.....If you knew anything about the Markets, you might realize...

That INTEL was dragging the S&P down....And Credit Card Co's were propping the DOW...

Unfortunately for us, GE is one of the "laggards" there (DOW); Down about 2%+.

Jan 17, 2014 1:40PM
When are they going to give me Cramer`s job?
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