Nobody wants to be cyclical. That's what makes cyclicals so hard to own and find. I found myself joking with CEOs at the
Williamsburg Business Council
meeting about how they are ruining this cyclical rally by taking away the cyclicality of their own businesses. All laughed. But all agreed that's what they were trying to do.
Understand that CEOs wish to smooth out their earnings so that they don't have to explain themselves every quarter. They don't want to be beholden to commodities or worldwide growth. They don't want to be hostage to the vicissitudes of German or U.S. or British interest rates. They want to be like the way
Even when we want them to blow the numbers away and participate in this big move.
There is a reason for this clinical avoidance of cyclicality. These CEOs know that in their lifetime the most successful CEO has been
. During Welch's tenure he systematically reduced the cyclicality of the company and boosted its stock price dramatically. There was no coincidence; the stock roared because it lacked cyclicality. When Asia cratered, the stock roared. When Latin America got creamed, the stock roared. It was hostage to nothing other than its own management. Money managers loved that!!
Part of how the company did it is GE's strong finance arm. But more important is that Welch has made his company indispensable to its clients, and it doesn't get cut back when times are tough. Its giant balance sheet allows the company to have the flexibility to take hits in one area (and take market share while it does) as it advances in another. Meanwhile, it has taken out costs beyond what anyone thought possible 10 years ago. It offloads any business that cannot have its destiny controlled.
Not everyone gives GE the benefit of the doubt. Kathryn Welling of
last year blindly quoted some money manager as saying that GE is a "hedge fund in drag" and suggesting that GE has done it all through financial engineering. Hey, cheapshots.com!!
doesn't control the stock market. Or the CEOs who idolize Welch. That's why there is such scarcity value to the true cyclicals. As enjoyable as it is to trade them, it is much better to invest in growth.
So, expect fewer cyclicals and respect that the commodity is an endangered species for all but those who can't help be cyclical no matter what they do.
James J. Cramer is manager of a hedge fund and co-founder of TheStreet.com. At time of publication, his fund had no positions in the stocks mentioned, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Cramer's writings provide insights into the dynamics of money management and are not a solicitation for transactions. While he cannot provide investment advice or recommendations, he invites you to comment on his column at