Cyclicals? Not anymore

Companies such as Eaton and Honeywell saw the downturn and took matters into their own hands.

By Jim Cramer Mar 5, 2010 8:38AM
Jim Cramer

By Jim Cramer, TheStreet

 

We need to stop thinking of the cyclicals as cyclical. That's what I have been thinking about as I watch the classic cyclicals, the ones that used to be totally connected to the gross domestic product and residential or auto construction domestically, systematically create long-term growth by abandoning the traditional business lines.

 

Last night I interviewed Sandy Cutler, an amazing CEO who took out almost $500 million in costs ahead of the downturn yet spent more on R&D to develop what might be the best power management franchise in the world. Eaton's (ETN) about trying to get the most out of energy as well as providing top-flight electronics for aerospace. It's about as high-tech as you can get. This was a class eight truck company 15 years ago. It still has that business, for sure, but solar and wind management might be as important and will certainly be more important in a few years.

We are seeing this transformation over and over again. Honeywell (HON) and Emerson (EMR) have also become, to a certain degree, energy economizers, companies you bring in to save money because of $80 oil. They are doing our nation's energy policy in place of whatever this president thinks his energy policy is. Wake me when you find out.

 

I like these kinds of companies because they can be modeled. They make the right acquisitions, they add to their portfolio, they take out costs, they generate billions of dollars in cash flow and they have visibility. Eaton, Emerson and Honeywell all fall in that category.

 

Find a new broker for 2010

 

Contrast them with Marvell Tech (MRVL) which shouldn't be having a disappointing quarter given the robust nature of the end markets. Contrast them with the little to no growth drug businesses that are subject to a hostile government and a slow Food and Drug Administration.

 

Normally, when an Eaton or an Emerson or a Honeywell have had runs you sell 'em and short 'em betting that they will miss the quarters. But the industrial shorts have proven disastrous this time around. They have moved their businesses to where the businesses are growing: lesser developed countries. They have developed businesses that are meant to get your company out of the crosshairs of government energy regulation. They have become the great users of all the Silicon Valley technology available.

 

They are working.

 

Simple formulas executed by terrific CEOs who saw the downturn and decided to take matters into their own hands.

 

Pretty remarkable when you think of it.

 

At the time of publication, Cramer was long Honeywell.

 

Jim Cramer is co-founder and chairman of TheStreet. He contributes daily market commentary for TheStreet's sites and serves as an adviser to the company's CEO.

 

Related Articles:

 

 

Russell 2000: Breakout or top?

 

Will Friday's jobs report be a snow job?

 

5 Dumbest Things on Wall Street: March 5

 

 

 

0Comments

DATA PROVIDERS

Copyright © 2014 Microsoft. All rights reserved.

Fundamental company data and historical chart data provided by Morningstar Inc. Real-time index quotes and delayed quotes supplied by Morningstar Inc. Quotes delayed by up to 15 minutes, except where indicated otherwise. Fund summary, fund performance and dividend data provided by Morningstar Inc. Analyst recommendations provided by Zacks Investment Research. StockScouter data provided by Verus Analytics. IPO data provided by Hoover's Inc. Index membership data provided by Morningstar Inc.

STOCK SCOUTER

StockScouter rates stocks from 1 to 10, with 10 being the best, using a system of advanced mathematics to determine a stock's expected risk and return. Ratings are displayed on a bell curve, meaning there will be fewer ratings of 1 and 10 and far more of 4 through 7.

116
116 rated 1
265
265 rated 2
429
429 rated 3
612
612 rated 4
499
499 rated 5
525
525 rated 6
701
701 rated 7
533
533 rated 8
337
337 rated 9
131
131 rated 10
12345678910

Top Picks

SYMBOLNAMERATING
UPLULTRA PETROLEUM Corp10
COPCONOCOPHILLIPS9
TAT&T Inc9
DVNDEVON ENERGY CORPORATION9
EOGEOG RESOURCES Inc9
More

VIDEO ON MSN MONEY

ABOUT

Top Stocks provides analysis about the most noteworthy stocks in the market each day, combining some of the best content from around the MSN Money site and the rest of the Web.

Contributors include professional investors and journalists affiliated with MSN Money.

Follow us on Twitter @topstocksmsn.