• 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
    • Bruce Kamich
    • Doug Kass
    • 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
    • TheStreet Smarts
  1. Home
  2. / Investing
  3. / Industrials

Cramer: Europe Is the New Swing Factor

The EU recovery has put heavily exposed U.S. techs and industrials in an enviable position.
By JIM CRAMER Oct 28, 2013 | 06:15 AM EDT
Stocks quotes in this article: DD, EMR, HON, AVT, PPG, ETN, UTX

Why do people keep talking about how industrial and tech names still seem undervalued even after this remarkable run? I think I have the answer: Europe. Just last week on "Mad Money," I interviewed the CEOs of Avnet (AVT), PPG (PPG) and Eaton (ETN) -- three great American corporations that do a huge amount of business overseas. All of these companies, like so many terrific U.S.-based enterprises, diversified into Europe many years ago as they recognized that the European Union opened up a gigantic market of 700 million people, all served by one currency. We forget that, before the euro, it was difficult to do business in Europe because of all the different fluctuating currencies and interest rates in each country. The euro truly did unite Europe when it comes to commerce, and it enticed our companies to buy and build there with alacrity.

So we have Avnet, the technology superstore; Eaton, the electrical-equipment concern; and PPG, the proprietary-coatings-and-glass company. These three have represented the cream of the crop in their respective industries, and each company knew it offered superior products and that it could take share from the locals.

Now, if you'll recall, Europe really didn't come down with its version of the economic flu until well after the U.S. economy hit the wall. The illness, moreover, was magnified by two-interest rate hikes that crushed industries in almost every European country except Germany. No company had been prepared for the ultimate depth of the European recession, and the above three firms saw dramatic sales declines in their respective European businesses. That, in turn, hurt overall revenue and earnings, because the continent represented roughly one-quarter of the entire geographic revenue mix.

Now, though, all three of these companies see a noticeable stabilization in Europe that has occurred just this past quarter. Yes, it is true that none of these CEOs -- Avnet's Rick Hamada, Eaton's Sandy Cutler and PPG's Chuck Bunch -- expect anything robust to come from Europe anytime soon. But all expect 2014 to be better than 2013. When you combine easy sales and earnings comparisons with a weaker dollar vs. a resurgent euro -- the currency pair is at $1.38 Monday, a two-year high -- you get the possibility of a pretty huge swing in earnings. Chuck Bunch indicated that even a couple percentage points' swing in European revenue could be huge, because a massive amount of costs had been taken out amid the prolonged downturn.

The techs and the industrials aren't the only companies that have diversified into Europe. U.S. packaged-goods companies and pharmaceuticals are dominant players there, as well. However, none saw a downturn nearly as huge as that of the cyclicals. Europe could now act as a healthy offset to a U.S. slowdown caused by our dysfunctional government -- something that our purely domestic companies won't have in their arsenal.

Given the breadth of the product Avnet sells in Europe, including semiconductors, software, disk drives and flash memory, you can expect that many of our tech companies are going to see a similar boost. You can say the same about companies as diverse as Honeywell (HON), United Technologies (UTX), Emerson (EMR) and DuPont (DD).

Moreover, we are very likely to see that big advance in sales for which so many have been waiting. I have held that it has been stupid, and is stupid, to wait for it. By the time it happens, these kinds of stocks will have advanced so far that the move will already have been made. That's why I think you need to buy these stocks on any material weakness we get in this country -- a bad U.S. labor report, or a soft gross domestic product figure or retail-sales number. That's because Europe, not the U.S., is now the swing factor. Given the cost takeout and the possibility of very good continental sales, I am sensing that these stocks could be the biggest standouts for 2014.

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 ETN and HON.

TAGS: Investing | U.S. Equity | Industrials | Technology | Markets |

More from Industrials

FAA's OK Will Propel Boeing Further, But Don't Get Aboard Just Yet

Brad Ginesin
Aug 3, 2022 12:14 PM EDT

Let's walk through when it will be the best time to buy shares of this aerospace giant.

This Picture of Caterpillar Lacks Focus

Bruce Kamich
Aug 2, 2022 1:16 PM EDT

The charts and indicators of CAT are truly mixed.

Caterpillar Is a Trade, Not an Investment, After Its Unimpressive Earnings

Stephen Guilfoyle
Aug 2, 2022 10:20 AM EDT

I think CAT is going to have to find a new discipline in improving the balance sheet that has just not been there.

Let's See How the Charts of Trimble Measure Up

Bruce Kamich
Aug 1, 2022 2:00 PM EDT

TRMB could pull back before the next move higher, so let's see how to play it.

Industrious Investing: 3 Industrials With 3% or Higher Dividend Yields

Bob Ciura
Jul 30, 2022 7:00 AM EDT

Let's look at three major industrial names that should provide stability in a recession.

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

  • 10:24 AM EDT JAMES "REV SHARK" DEPORRE

    This Weekend on Real Money

    To Improve Your Trading and Investing, Spend More ...
  • 08:44 AM EDT PETER TCHIR

    CPI Beats Expectations, But Maybe Not the 'Whisper'?

    Slightly better-than-expected inflation across the...
  • 01:44 PM EDT STEPHEN GUILFOYLE

    This Holding Lights Up With Strong Earnings

    Check out the latest from TheStreet's Stocks Under...
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2022 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