Procter & Gamble Vs. Parker Hannifin

“One of the most vicious sector rotations I’ve ever seen” is driving the market, Cramer said Thursday. Money managers are dumping one group of stocks en masse for another on the assumption that the economy is turning up.

The action in Procter & Gamble and Parker Hannifin tells the story clearly. Next week, P&G will report a great quarter, Cramer said, but Wall Street will punish the stock anyway. Meanwhile, PH reported numbers last week that were below analysts’ expectations and cut its full-year guidance. Since then the stock has consistently moved higher, adding another $2 on Thursday.

Why, you ask? Because the big money sees the U.S. finally emerging from a recession over the coming six months, and that puts industrial companies like Parker Hannifin, which makes aerospace parts and industrial components, in the buy column. Hedge and mutual fund managers are looking for the explosive growth that PH could offer if the economy revs up as expected. At the same time, so-called safety stocks like P&G fall out of favor. Why own a company that will deliver much the same earnings next year when Parker Hannifin could generate big, big returns?

This is the prevailing wisdom on Wall Street right now, and it’s the reason these stocks are either up or down. Sure, PH’s aerospace business has held up during the downturn, and the company offers a decent 2.3% dividend yield. But the stock was priced for a depression, Cramer said, and that scenario is off the table. Now the Street thinks Parker Hannifin goes higher.

That doesn’t mean you just throw out Procter & Gamble, though. Those who still want to own the stock for the long term can buy it on the way down – and it will go down, Cramer said. Then save it until there’s a vicious rotation back into safety stocks.

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