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NEW YORK ( TheStreet) -- Although the Dow Jones Industrial Average and S&P 500 continue to grind higher, there’s a much bigger rotation going under the hood, Jim Cramer explained to his Mad Money viewers on Wednesday.
Secular growth stocks -- those which are non-cyclical and don’t necessarily need a strong economic environment in order to thrive -- did very well for a very long time, he said. That means staple stocks like PepsiCo (PEP) and Procter & Gamble (PG) and drug stocks like Bristol-Myers Squibb (BMY) , Allergan (AGN) , Celgene (CELG) and Gilead Sciences (GILD) .
But that all changed today, Cramer said. Fund managers are looking to “rest” their top stock picks and bring in some “bench” stocks, which have been laggards in the rally. So now it’s time for the cyclical stocks to be the leaders.
Believe it or not, truck orders are actually a great way to get a pulse on the overall economy, he explained. Those just hit eight-year highs, which is good for companies including Caterpillar (CAT) , Action Alerts Plus holding Eaton Corp. (ETN) , Joy Global (JOY) and Cummins (CMI) .
Industrial technology stocks like Intel (INTC) , Hewlett-Packard (HPQ) and Micron (MU) also need a strengthening economy to thrive. Others, like SanDisk (SNDK) , Cisco Systems (CSCO) and EMC Corp. (EMC) , are only in the “early stages of moving higher,” he said.
Plenty of other cyclical plays can continue moving higher, especially if Friday’s non-farm payrolls report is “halfway decent,” Cramer added. So while the averages continue to creep higher, investors should realize the subtle, yet important rotation that’s taking place behind the scenes.
Executive Decision: Manny Chirico
For the show’s “Executive Decision” segment, Cramer spoke with Manny Chirico, chairman and CEO of PVH Corp. (PVH) , another Action Alerts PLUS holding.
The company beat on EPS estimates for the third quarter and boosted gross margins, but showed weakness in Europe, missed third-quarter revenue estimates and provided weaker-than-expected guidance for the fourth quarter.
The declining euro, which has fallen about 7.5% over the past several months, is really weighing on the European business, Chirico said. The region’s struggling economy and poor weather aren’t helping either. But the largest impact in Europe is tied to the currency woes, he explained.
In North America, the investment spending for the Calvin Klein brand will finish up in 2014, so the company will be able to reap the rewards in 2015. The company’s brands have been doing very well in J.C. Penney’s (JCP) stores as well, he said.
Finally, Chirico added that falling gas prices have been great for consumers, but so far that extra spending money hasn’t been translating into increased sales in the apparel industry. Maybe that will change going forward and the company will keep a close eye on the business during the holiday season.
Cramer said he likes what he hears from Manny Chirico.