Finding Value in United Technologies
In times of market uncertainty, turning to names that have thrived in good times and persevered in difficult ones is not a bad strategy.
Also younger than the sun
Ere the bonnie boat was won as we sailed into the mystic"
-Into the Mystic (Van Morrison)
If you want to feel better about things this morning, go back to your music collection and put this song on. When I woke up and saw the BNP Paribas headlines my mood immediately went south. A mere eight days ago the company's CEO was reassuring folks that it had a handle on things regarding credit exposure. What a difference eight days make. So I jump in the car - and like magic, Into The Mystic comes on and for a few minutes all was well in the world.
But guess what? It dawned on me that although credit fears rule the day, by and large things are pretty good. You need look no further than John Chambers' comments yesterday - "the current global economy is the strongest he has seen in his career" - to put things back in proper perspective. So let us venture to find something good this morning!
United Technologies (UTX), according to its website, "is a diversified company whose products include Carrier heating and air conditioning, Hamilton Sundstrand aerospace systems and industrial products, Otis elevators and escalators, Pratt & Whitney aircraft engines, Sikorsky helicopters, UTC Fire and Security systems and UTC power cells." Now, the first thing that sticks out to me would be United's inherent exposure to the housing industry - not a great thing in the current environment.
And although its residential exposure can't be denied, it seems to have been at least offset by the still healthy non-residential construction cycle. The driver here has been the white hot aerospace sector. Just look at some recent news.
On July 31, Pratt & Whitney was awarded a $1.05 bln Air Force contract to deliver F-117 military transport engines. Also that day, UTX was awarded a fixed price contract modification for $1.28 bln for F-119 engines. July 16, Pratt & Whitney was awarded a $1.28 bln NASA contract. The list goes on from there. Understanding these are all long term contracts and those numbers can be misleading on the margin, the trend in terms of number of actual contracts cannot be understated.
In times of market uncertainty, turning to names that have thrived in good times and persevered in difficult ones is not a bad strategy. Just take a look at a chart of UTX since the fall of 2002 if you need visual proof. Plus, their Chairman of the Board and Chief Executive Officer, George David, is not only one of the smartest CEOs in the country, in my opinion, he is also one of the great pioneers in terms of corporate generosity. Under United Technologies' Employee Scholar Program, employees have earned more than 20,800 degrees. UTX not only pays tuition and fees but also pays time away from work.
There is a lot more going on right now than subprime contagion and hedge fund risk - take a look at United Technologies and you will see what I mean!
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