Why we're seeing an Olympic-size rally in industrial stocks and what's next

Boy, does this market love the cyclicals — stocks that tend to rise and fall with the economy. I know I am supposed to be off this week — the Olympics are giving me a chance for some needed R & R, but I can’t help but notice the “podium-worthy” rallies in some of our cyclicals, even if they have revenue growth of only 1% or 2% in some divisions. This development is highly unusual and may have to deal with the instant overvaluation of health care and the comeuppance of some of the old Magnificent Seven. Yes, I said it, the old Magnificent Seven. The new DuPont Take DuPont , which reported strong quarterly results on Tuesday. This company has had a remarkable transformation into a two-way breakup: Qnity Electronics , a supplier of chemicals and materials used to make semiconductors, and the new DuPont, a health care and water company with some industrial exposure that could see further refinement, just like its pending sale of the iconic Kevlar brand. We have kept the stocks of both DuPont and Qnity. There were two remarkable elements to the DuPont-Qnity breakup, which happened in November. First, if you waited, if you decided to believe in CEO Lori Koch, as we do, then you made out great. Most can’t wait. We did. The second remarkable thing, while we knew electronics was a secular grower, and health care and water were as well, the remaining industrials had either been down or were one to two digit gainers. That, to me, means that people must think either that Koch is still in sell mode or that the buyers genuinely want more cyclicality, as these cats and dogs need lower interest rates to grow. Rise of Dover It truly may be the latter because Dover has had a remarkable run as its industrial-focused portfolio found its way into double-digit bookings and near double-digit earnings growth. All of its portfolio companies fared well. All would do even better with lower rates. Honeywell humming I feel the same way about Honeywell . As it gets closer and closer to its own breakup into an aerospace company and an automation company, people are realizing the value here, and they are seeing that the security automation side would benefit from lower rates. How about how that stock has moved up after being in the $190s late last year, total spin purgatory. It’s back now, and it’s performing spectacularly, and it can’t all be because of Quantinuum, the majority Honeywell-owned quantum computing company that took the first steps last month toward an initial public offering. The aerospace-automation split at Honeywell is set for the back half of 2026. Late last year, Honeywell took steps to streamline the company by spinning off Solstice Advanced Materials. We kept Solstice for a while, but in January, we exited what was a very small position after a solid run. Be patient with Linde Industrial gas giant Linde may fit the description, too. It didn’t have the growth that analysts were looking for — and, in some ways, it has gotten all it can out of its secular portfolio as it waits for some cyclical help. I think it’s coming, but people aren’t being patient. They are trying to get ahead of it. GE Vernova, Eaton energized As for the strength in GE Vernova , a maker of natural gas turbines, and Eaton , a power management provider, I think it is pure data center, even as both companies have other divisions. On Wednesday afternoon, we raised our price targets on Eaton to $425 per share from $410 and GE Vernova to $875 from $800. ‘Warsh’ stocks Maybe these cyclicals are all “Warsh” stocks — stocks that need lower rates, which are expected to come if former Federal Reserve governor Kevin Warsh becomes central bank chairman, to propel themselves. Contrast that with, say, Meta Platforms or Microsoft , where lower rates may mean nothing, certainly less than an Amazon . We know there is some correlation, but they have never traded that way. Warsh is President Donald Trump 's pick to run the Fed when Jerome Powell 's term as chairman is up in May. Warsh does need Senate confirmation. Trump wants lower rates. He’s badgered Powell. The Justice Department launched an investigation into Powell’s handling of the renovation project of the Fed’s headquarters in Washington, D.C. Warsh, a former hawk at the Fed, is on board with the president’s dovish mandate. The big test will come from Home Depot . You know I am disappointed in Home Depot. I figure it would be more levered to housing than Lowe’s , and it turned out you want to be less levered. Now, we have to see how much Warsh can help a retailer. Home Depot has always been a chart stock. Right now, the chart looks terrible. A classic head and shoulders. It will be a terrific test case, and I wonder if the Warsh impact can spur the stock to life, something that it is fighting for — for dear life. We have to get used to this Warsh effect. Bottom line As I think about the names to add to our Bullpen watchlist of stocks to consider for the portfolio, I am reviewing those with cyclicality that haven’t run. Nothing yet. I am also interested in health care because the name we are anxious to boot is Danaher. How many times can we be disappointed? Stay tuned. The culling is going on. Remember, we felt we couldn’t do justice to all the stocks we have in the portfolio at the most recent Monthly Meeting. While I like nearly every one of them, one has to go before we add one, which is always a tricky thing. (Jim Cramer’s Charitable Trust is long DOV, HON, DD, Q, META, HD, ETN, GEV, MSFT, and AMZN. See here for a full list of the stocks.) As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust’s portfolio. 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