• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Doug Kass
    • Bruce Kamich
    • Jim Cramer
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • Trifecta Stocks
  1. Home
  2. / Investing
  3. / Industrials

Cramer: A Painful Lack of M&A

Banks and industrials are deal-less sectors in a deal-filled world, and that is what's making them suffer.
By JIM CRAMER
Aug 12, 2014 | 05:09 AM EDT
Stocks quotes in this article: STI, WFC, KEY, BAC, ETN, BEAV, GE, EMR, PH, DHR, MMM, HON

When we talk about mergers and acquisitions, we think they run the gamut of industries. In fact, they don't, and the two areas where we have seen no consolidation are the two areas whose stocks are just acting horrendously at this moment. This makes sense. When there is no consolidation, there's no ability to rationalize and take out costs. Without consolidation, there's way too much competition. Without takeovers, you just can't boost estimates, the lifeblood of all positive stock moves.

Which two industries am I talking about? The banking stocks and the industrials.

I have watched the sickening dribs-and-drabs selloff in the banking group for what seems like ages now. My Action Alerts PLUS charitable trust has watched SunTrust (STI), which reported a terrific quarter, see its shares pretty much give up a few pennies a day, except for the days when it gives up $0.25 or $0.30. It's totally gut-wrenching. I look at the stock of Wells Fargo (WFC) and I wonder what happened to that spike to $53 on that fabulous quarter. KeyCorp (KEY), which was knocking on $15's door, now looks like it can slice through $13.

Meanwhile, Bank of America (BAC) got permission to raise its dividend for the first time in seven years -- obviously something that wouldn't have been done if it were about to be bankrupted by the U.S. Justice Department. Yet the stock is now below the level where it had been when the firm had gotten the go-ahead.

We know the degradation is occurring because interest rates on U.S. Treasuries have gone down to the point at which the earnings estimates -- which analysts set when these companies reported a month ago -- are now too high. They are all vulnerable to number cuts.

Here's what's more important, though: This was a group that, before the Great Recession, used to be the subject of endless merger talk. Shares of a bank such as SunTrust couldn't go down like this without prompting the worry that a name such as BB&T (BBT) would take it over. You could expect to hear a big Spanish bank knocking on the door of a bank such as KeyCorp at this point. First Horizon (FHN) would have been gobbled up by a name such as Royal Bank of Scotland (RBS). Wells Fargo would be snapping up banks left and right, and JPMorgan Chase (JPM) would be right there with it.

No more, though. The potential acquirers from Europe are shedding assets. The concentration of banks from the Great Recession is now way too great for any authority to bless a big bank buying a little one. So the group, without any yield support to speak of and no takeovers imminent, just languishes, as higher rates are needed before anything good can happen.

Industrial shares, for their part, seem frozen from the time when the MH 17 Malaysia Airlines flight tragically went down last month. But, in truth, they haven't really kept pace, and real doubt has emerged about the value of some of their acquisitions.

Eaton (ETN), after initially wowing the street with its buy of Cooper, is now reviled for the straitjacket this deal has put the company into. Ever since B/E Aerospace (BEAV) failed to get a bid earlier this spring, the whole aerospace group has been a pathetic place to be. The agriculture business, the mineral business, the industrial conglomerates: They have all done nothing to consolidate.

The one big deal, General Electric's (GE) buy of Alstom, came with so many restrictions that I believe GE's stock would have gone up if the company had walked away. Emerson (EMR), Parker Hannifin (PH), Danaher (DHR) -- they have all disappointed.  Even the good ones, such as 3M (MMM) and Honeywell (HON), inevitably retreated. I think this is strictly a sign that Europe has gotten uncertain since Russia and Ukraine have started going at it, and the industrial confidence has been sapped.

Yep, a deal-less sector in a deal-filled world is not going to get any takers. Banks can't, and industrials won't -- and that creates a huge void in these two gigantic segments of the S&P 500.

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

At the time of publication, Action Alerts PLUS, which Cramer co-manages as a charitable trust, was long STI, BAC, ETN and GE.

TAGS: Investing | U.S. Equity | Financial Services | Industrials |

More from Industrials

Be a Scale Up Seller of Quanta Services

Bruce Kamich
Jan 20, 2021 1:58 PM EST

Let's check the charts and indicators.

3M and Mastercard Continue to Trade Sideways

Bruce Kamich
Jan 20, 2021 10:55 AM EST

Both stocks may eventually do better when investors sense that the economy is indeed going to do better.

At What Price Is Ballard Power Systems a Buy?

Bruce Kamich
Jan 15, 2021 3:09 PM EST

Let's check out the latest charts of BLDP.

Honeywell Jumps Into Vaccine Distribution but its Prices May Weaken

Bruce Kamich
Jan 15, 2021 9:14 AM EST

Let's review the charts and indicators.

Another Look at the Charts of Plug Power

Bruce Kamich
Jan 8, 2021 9:56 AM EST

Pay attention to the Japanese candlestick.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 11:01 AM EST JAMES "REV SHARK" DEPORRE

    This Weekend on Real Money

    I discuss price targets in my Saturday column.
  • 07:54 AM EST GARY BERMAN

    Friday Morning Fibocall for 1/22/2021

    SPX (Long-Term View) The 1/21/21 NEW high @ 3861...
  • 11:16 AM EST CHRIS VERSACE

    Worst Stocks to Buy for the Biden Presidency

    Biden's take on the minimum wage, likely moves on ...
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2021 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login