Finding those diamonds

November 11, 2008
By: Tim Heston

My wife loathes when she walks into the family room and sees me watching a certain, shall we say, intense person jumping around a wacky set and talking stocks. OK, I admit it: I like watching Jim Cramer. I"m not a day trader. I don"t live and breathe the Dow. I haven"t even opened my 401(k) statements for the last quarter. But there"s something about Cramer that draws me. It"s not what he says; it"s how he says it. In a way, his behavior on the show could be a metaphor for the market. It"s crazy and hyper on the surface, but if you cut through the clutter, there are some rational moments here and there.

That"s why I was happy yesterday when Cramer turned bullish for Caterpillar, a global giant near and dear to the metal fabricating industry. To me, infrastructure means one thing, whether it"s the United States or China, he said Monday on his Stop Trading! segment on CNBC, and that"s Caterpillar. The analysts were far too negative versus what the company can do. When I hear stimulus, I hear building; when I hear building, I hear Cat.

The news was one bright spot in a string of bad news this week about manufacturing. The Bureau of Labor Statistics reported that manufacturing lost 90,000 jobs, more than any other sector of the economy. Within that, the fabricated metal products sector lost 11,000the highest among all durable-goods manufacturing categories, as grouped by the government"s classification system.

The auto sector continues its bloodletting: General Motors managers admitted they may run out of operating cash by the end of the year, and talk of a bankruptcy emerged. With housing the way it is, Whirlpool Corp. said it plans to cut 5,000 jobs by the end of 2009. "The global credit crisis has had a profound negative impact on what was already a weakening and very fragile global economy, said Jeff M. Fettig, chairman and chief executive. Declining home values, rising unemployment, and very low consumer confidence levels will likely prolong a negative demand environment at least through the middle of 2009.

There"s plenty more bad news where that came from. Ohio-based steel processor and fabricator Worthington Industries shed 300 from the company"s plants in Renton, Wash., and Louisville, Ky. Deere & Co. laid off 50 at its Dubuque, Iowa, plant. Even Warren Buffett is feeling the pain. His Berkshire Hathaway expanded its footprint in the metal fabrication business with the purchase of The Marmon Group earlier this year. Still, that acquisition is small potatoes compared to recent losses in Berkshire"s financial and insurance businesses; Berkshire profits fell 77 percent in the third quarter.

I equate the bad news with Cramer"s antics. They"re in your face, making headlines. Times are crazy and stressful, not unlike Cramer"s blood pressure (at least judging by the veins I see pop out on his forehead). But then there"s Cramer"s rational side, when he calms down and admits times are incredibly tough, but people (and governments) still need to buy stuff. Fluor Corp. had a good quarter. Oil and gas manufacturing giant Foster Wheeler still has a sizable list of backorders.

And then, of course, there"s Cramer"s Caterpillar. Both China and the U.S have stimulus packages in the works. One of these two [packages] is going to play out, he said, and either way, Cat"s going to get the orders.

It seems there are diamonds in the rough. The trick is finding them.

Tim Heston

Tim Heston

Senior Editor
FMA Communications Inc.
2135 Point Blvd
Elgin, IL 60123
Phone: 815-381-1314