Cramer: Signs an earnings explosion is coming

With so much negativity surrounding earnings season, Jim Cramer refuses to feed into it. In fact, he is downright positive about what could be ahead for earnings.

"The action is dictating my attitude, the action that has so many stocks hitting new-highs in the last week alone, something that tends not to happen right before you fall off a cliff," the "Mad Money" host said.

One look at the companies that made the new-high list last week, and Cramer saw a common thread. The list included Estee Lauder, Kimberly-Clark, Coca-Cola, Church & Dwight, Altria, PepsiCo, Tyson, ConAgra, Constellation Brands, General Mills and McCormick.

What do all of these companies have in common? They take raw commodities and refine, package and sell them.

Fireworks explosion
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"I think what it says is these companies are about to have an explosion in gross margins and earnings that will be far better than people believe is possible." -Jim Cramer

The concentration of these consumer-package plays told Cramer four things: First, raw costs are calm and behaved. Second, all packaging must be going down in price. Third, distribution costs are at a big low, thanks to oil and gas. And finally, the dollar has peaked versus currencies of trading partners, which means these companies could do quite well in the second half.

Some may think that these stocks could be indicative of a slowdown in the economy, but Cramer thinks that is an old fashioned way of looking at things. These companies have battled inflation for years and have raised prices consistently.

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"I think what it says is these companies are about to have an explosion in gross margins and earnings that will be far better than people believe is possible. That is what this concentration of consumer packaged goods stocks on the new-high list is really saying," Cramer said.

The other members of the new-high list also gave Cramer reassurance. Such as Automatic Data Processing, a payroll processor, which indicated to Cramer that employment could be getting better.

Home Depot, Vulcan Materials and Sherwin-Williams were also on the list. They indicated to Cramer that there is a robust housing market.

Cramer also thought it was significant that both Darden, the owner of Olive Garden, and Sysco, a restaurant supplier, were on the list. That showed that the consumer is going out and spending money.

The oil and transports were sadly missing from the list, as were industrials. However, Cramer suspects that when the industrials report earnings and match their prospects with a weaker dollar, many could be on a list of champions.

"When everyone dislikes the market, as so many people do, you can't expect all the goods stocks you like to be on the new-high list. But when you see this kind of distribution, you know that the leadership is there. Others will follow," Cramer said.

If history is an indicator, that means these kinds of stocks will continue to expand, not contract from here. And Cramer will be ready when it happens.

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