Cyclicals? Not anymore
Companies such as Eaton and Honeywell saw the downturn and took matters into their own hands.
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.
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.
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