Mad Money

2 Top Plays on the Economy’s Upswing

Add 3M and Emerson Electric to Cramer's cadre of top American manufacturers. Why? Because in the first two years of the last two economic recoveries, such multi-industry and electrical-equipment outfits outperformed the S&P 500 by an average of 23 percentage points each year.

Industrial Revolution? Cramer Says So

In every recovery Cramer’s witnessed, he said, there’s a sequence to which businesses come back first. Typically, the early-cycle businesses, like automobiles and housing, outperform as economies around the world begin to pick up. As those economies gain momentum, the mid- and late-cycle businesses, like industrial equipment and non-residential construction, start gaining speed.

“That’s why, when we’re balanced on the tipping point where the late-cycle plays begin to move but the early-cycle ones are still going strong,” Cramer said, “you need to try to snap up a diversified industrial player like a 3M, like an Emerson … on the cheap. These players give you a high-quality mix of early-, mid- and late-cycle businesses—just what you want to play a recovery.”

At 3M , 28 percent of the business is early cycle, 25 percent mid cycle, and 12 percent late cycle, with 35 percent coming from less economically sensitive end markets. Emerson is 14 percent early cycle, 47 percent mid cycle, 37 percent late cycle and 2 percent defensive.

In addition to their top-notch managers and strong business footprint abroad, as well as their readiness and willingness to make smart acquisitions, each company brings something unique to the table.

For 3M, that’s its product innovation. This isn’t just a maker of Scotch Tape and Post-It notes. No, the company is constantly developing new ideas for its end markets in industrial and transportation, health care, safety, security and protection, consumer and office, display and graphics and electronic communications. So much so that 6 percent of sales go to research and development, more than any competitor.

3M also does a great job of protecting its higher-priced premium products with midrange and lower-priced counterparts. This has proved especially important as it sells into emerging markets. And the company is known for its outperformance track record, where it delivered the highest margins in the industry throughout the Great Recession. It has also continued to perform well during the recovery, and has a nice dividend yield.

3M's CEO recently rolled out a "bold" five-year plan that Cramer likes. The company is aiming for 7 to 8 percent annual organic growth revenue through 2015 and emphasized strong growth in emerging markets.

Emerson, on the other hand, while also being an innovative industrial, is more of a traditional smokestack company. It makes parts and tools for other businesses, namely the equipment that helps fluids and gases move quickly, keeping the engines running and the power on. Think automation systems, process controls, climate-control technologies and various tools, appliances, motors and storage units. So when big corporations build new plants or install better equipment to improve the efficiency of their old ones, they come to Emerson.

Cramer also likes the company’s network power business, which makes communication platforms and modules for the rapidly growing data-center industry. Emerson’s been bulking this division up, too, with acquisitions. Most recently with Chloride, a maker of uninterruptible power systems, for $1.5 billion.

Emerson is a big beneficiary of the global increase in infrastructure spending, Cramer said, especially in the emerging markets where its products are the gold standard. Hence these high-growth areas account for about one-third of the company’s revenue.

There’s a dividend worth noting here, too. And while 3M has increased its payout for 53 consecutive years, Emerson has upped its dividend for 54 straight.

“Yes, there are still big-picture macroeconomic worries in the United States,” Cramer said, “but if you don’t use the next sell-off to buy a best-of-breed industrial player like a 3M or an Emerson, you are going to miss the next up-cycle completely. And believe me, you do not want to miss out on this move.”

Call Cramer: 1-800-743-CNBC

When this story was published, Cramer's charitable trust owned Emerson.

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