We used to have so many industrials, but the list is dwindling. So, when you see an extraordinarily strong PMI, 63 and change, you don't have a lot of choices of what to buy.
So, what do people do? They reach for United Technologies (UTX) , Caterpillar (CAT) , 3M (MMM) and Honeywell (HON) . It comes naturally, and it is pretty much by rote.
What it does, though, is make it so the charts, which looked like they were rolling over yesterday, come alive today. The fickle nature of what looks like it is about to fall apart versus what is actually going to happen has bedeviled many a short-seller, as they would normally be all over a stock like CAT, say, when it failed to take out its high recently. The case is so easily made. China has a controlled slowdown, so there's no reason to buy this company that is so levered to China.
But as time goes on and our domestic economy comes back, Caterpillar could be worth more than it is, for certain. The company has fired so many people and has streamlined its supply chain and reined in its dealers. It's basically done everything during the downturn that it can to make it so when things get marginally better, its earnings really shine.
We are getting marginally better and its earnings are, indeed, going to shine.
Now, you are chasing if you buy these stocks, and the pattern has been very clear: you buy when they are down, even when they look like they are breaking down, as was the case recently with the rails. That's when you pounce.
The problem is that the buy point is so hard to recognize, because we have come to see that point as being when the stock is really rolling over for certain.
It's almost as if you have to be anti-chart to get it right. But in the case of the industrials, the anti-chart people have been dead right pretty much the whole way, even as the valuations are stretched and Fed hikes have, historically, been bad for the group.
Of course, rates are so low right now, that even a year from now there may not be a deleterious effect. But it will eventually happen.
One last note: when people wanted to reach for industrials, in the old days they reached for Action Alerts PLUS charity portfolio holding General Electric (GE) . Now, GE is an oil stock, and when oil goes higher it's a natural. That's because what has to be disposed and what stays, ex-healthcare, is fossil fuel-related, whether it is to save money if oil goes higher or buy equipment and service to drill.
It is amazing how GE could have been transformed from the worst financial to one of the worst oil-related stocks; but when oil's higher, it could replace Schlumberger (SLB) as the go-to name in the book.
