Despite fears of a debt default from Greece, multiple rate increases from China and signs of anemic growth in the U.S. this year, hedge funds and mutual funds are piling into the very stocks that are most-linked to growth in the global economy: industrials. The group, as represented by the Industrial SPDR ETF, is the top performer in the S&P 500 this year. The industrials shares gained momentum, in particular, three weeks ago at the height of Greece default fears as some investors bailed on stocks like Caterpillar and Deere and smarter investors (for now) scooped them up.
“These stocks are indicating that Greece is cooling down and China is going in for a soft landing,” said Peter Boockvar, Miller Tabak Equity Strategist. “And if you want growth, I prefer to own stocks leveraged to China and Brazil and not Western Europe and the U.S. anyway.”
Boockvar’s favorite pick is Deere (DE) for its exposure to demand for agricultural services, which he sees as a long-term trend in the emerging world.
Joy Global, a mining equipment maker, was the latest example of this trend, as the shares surged on Wednesday after raising its forecast on what its executives see as sustainable growth in China. Also today, Greece outlined stringent plans Wednesday to cut its deficit, allaying fears of a default on their debt.
The biggest worry for these names earlier in the year, before Greece, were the steps China initiated to cool its economy, like curbing lending. But rather than remain concerned, executives at industrial companies on the ground seem to believe that China can do a better job than Former Federal Reserve Chief Alan Greenspan did with our own economy in the last decade, keeping sustainable demand in the economy, while keeping an inflation bubble in commodities at bay.
“I think there’s high probability they will be able to sustain growth between 8 percent and 10 percent while moderating a little bit coming out of the very aggressive stance they took with monetary and fiscal policy to stimulate growth,” said Jim Owens, CEO of Caterpillar (CAT), on a conference call with analysts last month. “They’ve done rather masterfully in macroeconomic management through the cycle so far, but we still think that not only China, but India, Southeast Asia, parts of the Middle East, Brazil, and now even Russia are starting to come back in terms of their macroeconomic fundamentals.”
Last year, these companies cut inventories to the bone during the greatest global recession since the Great Depression, adds Jon Najarian, co-founder of OptionsMonster.com and tradeMonster, a broker-dealer “As we’ve worked down inventories, the producers get pricing power back.”
If you really believe Greece is in the clear and China’s planners are better maestros than Greenspan, Terex , a maker of construction and quarrying equipment with a market value of about $2.3 billion, may be a play.
“Terex is a name that will do much better then Caterpillar or Deere as it always shoots higher on the ups of the global economy and lower on the lows,” said Gary Kaminsky, former Neuberger Berman managing director and a ‘Fast Money’ regular. “If we are in an up-cycle for industrials, there is much more juice in Terex.”
Kaminsky notes that industrials tend to do well in a rising interest rate environment, which appears to be where we’re headed.
To be sure, not everyone is piling into industrial stocks. “In my opinion, the globe is falling apart, but no one seems to care,” said Brian Kelly, founder of research firm Kanundrum Capital. He believes that investors are using the classic recovery playbook of buying raw materials stocks first and then rotating into the industrials as the recovery starts to mature.
“The economy does not have the dry powder of credit expansion this time, therefore the traditional business cycle could be short circuited,” said Kelly.
For the best market insight, catch 'Fast Money' each night at 5pm ET on CNBC.
______________________________________________________
Got something to say? Send us an e-mail at fastmoney-web@cnbc.com and your comment might be posted on the Rapid Recap! If you'd prefer to make a comment but not have it published on our website send your message to fastmoney@cnbc.com.
Trader disclosure: On March 3rd, 2010, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Cortes Is Long Soybeans; Cortes Is Short Treasuries Through Futures And Puts; Adami Owns (AGU), (C), (GS), (INTC), (MSFT), (NUE), (BTU); Finerman's Firm Is Short (IYR), (IJR), (MDY), (SPY), (IWM), (USO), (UNG); Finerman's Firm Is Long S&P Puts; Finerman Owns (AAPL); Finerman's Firm Owns (BAC), (BAC) Leaps; Finerman Owns (BAC), (BAC) Preferred; Finerman's Firm And Finerman Own (GGWPQ); Finerman's Firm And Finerman Own (GOOG); Finerman's Firm Owns (MIL), (MIL) Calls; Finerman's Firm Owns (OSIP); Finerman's Firm Owns (TGT); Finerman's Firm And Finerman Own (WFC) Preferred; Finerman's Firm Owns (WMT); Grasso Owns (AAPL), (ABK), (ASTM), (BA), (BAC), (BGP), (C), (COST), (CSCO), (PFE), (PRST), (V), (WMT), (FAZ); Seymour Owns (CHL)
GE Is The Parent Company Of CNBC
For Steve Grasso:
Stuart Frankel & Co. Inc. And Its Partners Own (ABK)
Stuart Frankel & Co. Inc. And Its Partners Own (CUBA)
Stuart Frankel & Co. Inc. And Its Partners Own (GERN)
Stuart Frankel & Co. Inc. And Its Partners Own (GLG)
Stuart Frankel & Co. Inc. And Its Partners Own (HSPO)
Stuart Frankel & Co. Inc. And Its Partners Own (NWS.A)
Stuart Frankel & Co. Inc. And Its Partners Own (NXST)
Stuart Frankel & Co. Inc. And Its Partners Own (NYX)
Stuart Frankel & Co. Inc. And Its Partners Own (PDE)
Stuart Frankel & Co. Inc. And Its Partners Own (PRST)
Stuart Frankel & Co. Inc. And Its Partners Own (RDC)
Stuart Frankel & Co. Inc. And Its Partners Own (TLM)
Stuart Frankel & Co. Inc. And Its Partners Own (TOL)
Stuart Frankel & Co. Inc. And Its Partners Own (XRX)
Stuart Frankel & Co. Inc. And Its Partners Own (SDS)
Stuart Frankel & Co. Inc. And Its Partners Are Short (QQQQ)
Stuart Frankel & Co. Inc. And Its Partners Are Short (CL)
For Brian Kelly
Kanundrum Capital Owns (TM)
For Jared Levy
Peak6 Investments Owns And Has An Options Position In (AET)
Peak6 Investments Owns And Has An Options Position In (BAC)
Peak6 Investments Owns And Has An Options Position In (C)
Peak6 Investments Owns And Has An Options Position In (DE)
Peak6 Investments Owns And Has An Options Position In (GLD)
Peak6 Investments Owns And Has An Options Position In (GS)
Peak6 Investments Owns And Has An Options Position In (JOYG)
Peak6 Investments Owns And Has An Options Position In (MON)
Peak6 Investments Owns And Has An Options Position In (MOS)
Peak6 Investments Owns And Has An Options Position In (OIH)
Peak6 Investments Owns And Has An Options Position In (UNH)
Peak6 Investments Owns And Has An Options Position In (USO)
Peak6 Investments Owns And Has An Options Position In (WFC)
Peak6 Investments Is Short And Has An Options Position In (AGU)
Peak6 Investments Is Short And Has An Options Position In (EXPE)
Peak6 Investments Is Short And Has An Options Position In (FCX)
Peak6 Investments Is Short And Has An Options Position In (HUM)
Peak6 Investments Is Short And Has An Options Position In (JPM)
Peak6 Investments Is Short And Has An Options Position In (MS)
Peak6 Investments Is Short And Has An Options Position In (NVLS)
Peak6 Investments Is Short And Has An Options Position In (POT)
Peak6 Investments Is Short And Has An Options Position In (QQQQ)
Peak6 Investments Is Short And Has An Options Position In (XLF)
Peak6 Investments Is Short And Has An Options Position In SPX
Peak6 Investments Is Short And Has An Options Position In NDX
Peak6 Investments Is Short And Has An Options Position In RUT
