Why cyclical companies like Caterpillar end up losing

Cyclical businesses too much attached to the business cycle tend to be condemned when the economy as a whole slows down.

CNBC's Jim Cramer said on Wednesday that the report for his second quarter of 2004 was insufficient, which is why the stock fell by 4% during the session. The heavy machinery manufacturer has been hit by rising raw costs and supply.

"In the end, Caterpillar has been too attached to the oil and gas cycle – we now know in Halliburton, which is downsizing in the Permian Basin, that the drilling is deeply cyclical," Silver said. said the host.

"Still, I think it's a buy if it brings back below $ 130 … because I believe [CEO Jim Umpleby] can reverse the situation and make it more a secular producer, but now, I just feel comfortable to say it because it seems that the Fed will reduce interest rates. "

It takes time, but other cyclical stocks like United Parcel Service, Union Pacific and Honeywell have been able to develop age-old games, Cramer said. Secular businesses are not affected by short-term economic trends.

The transport company, in particular, has benefited from secular e-commerce, he said. In the second quarter, UPS beat earnings and earnings expectations and equities jumped more than 8% during the session to close north of $ 114 per share.

"Wall Street is still paying more for a secular producer than for a cyclical producer," said Cramer.

"Observe this process.When cyclicals manage to get out, it will look like transforming an ugly caterpillar into a beautiful butterfly," said the animator. "And they're failing? Well, that's just the old Caterpillar."

Disclosure: The Cramer Charitable Trust holds shares in Caterpillar and Honeywell.