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Honeywell Ramblin' On


A meandering stock for most of 2004 and 2005, Honeywell has been on the rise since bottoming out around $33 in October 2005.

"For now I smell the rain, and with it pain,
and it's headed my way..."
-Ramble On (Led Zeppelin, from Led Zeppelin II)

Well, after the last few weeks of market mayhem, it quite frankly is time to "Ramble On".

Yesterday's New York Times proclaimed the "conglomerates are back". If you have been watching Honeywell (HON) over the last couple of years, you know there is no question that this big cap heavyweight never left! A meandering stock for most of 2004 and 2005, Honeywell has been on the rise since bottoming out around $33 in October 2005.

When most people think of Honeywell, their mind immediately thinks of the rectangular thermostats on the walls of their homes. So by having exposure to the housing market it is not a quantum leap to say "Strike One" on HON.

For you NASCAR fans you also know Honeywell's Consumer Products Group to be the manufacturer of FRAM oil, air and fuel filters as well as Prestone antifreeze and coolant. So with another division linked to the auto industry, a quick "Strike Two" is well within reason.

In today's world two strikes and you are most definitely out but not only has Honeywell survived the last couple of years, it has thrived. Why, you ask?

Because Honeywell Aerospace has been knocking the cover off the ball. If you have been watching the orders rack up for Boeing (BA) you know that aerospace has never been hotter. Honeywell's aerospace products can be found on virtually every type of aircraft in use. We need only look at July 19's 2Q earnings announcement for evidence. Honeywell's aerospace sales were up 13% y/y versus guidance of up 7%. Margins in that area were 17.3% versus 15.4% one year ago.

Honeywell went on to raise EPS guidance for the balance of the year and maybe more importantly authorized an additional $3 bln stock repurchase which comes on the heels of a $3 bln stock repurchase announced on February 16.

Now, granted Honeywell's exposure to the housing market has been offset by the boom in non-residential construction and although the auto industry is in a bit of a "transitional period," there are still a lot of cars out there that need antifreeze! But if we do see some stabilization in both housing and autos Honeywell's performance can only improve. CEO David Cote has assembled a great management team and although there is no argument with the stock performance over the last two years I still feel the best is yet to come.

Now any Zep aficionados will be quick to point out that along with Ramble On, Led Zeppelin II contains The Lemon Song as well as Heartbreaker. But the fourth song of Side One is the tune that will be most apropos if you've been a Honeywell stockholder: the title? Simply Thank You.
No positions in stocks mentioned.

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