Perhaps the United States' two most prominent expressions of modernism are the skyscraper and the airplane. United Technologies (NYSE: UTX) plays a large role in and profits from each, and you will, as well, by owning UTX's shares. True, air travel (both leisure and business) has had a difficult stretch, domestically. What is the bullish argument in the segment? A large backlog in commercial aircraft orders at The Boeing Company (NYSE: BA) and Airbus, to which UTX supplies jet engines via its Pratt & Whitney unit (22% of revenue); and moderation in oil/jet fuel prices -- something that will help U.S. and foreign airlines. Further, while domestic travel will struggle to grow in the immediate years ahead, travel in emerging markets should return to adequate growth rates once healthy GDP growth resumes in Asia and Latin America: the world economy is not going to stay at an anemic 0.5% GDP growth rate forever.
The story is similar at the Otis (elevators, 23% of revenue) and Carrier (air conditioning, heating, and ventilation systems, 25% of revenue) units. Domestic results will lag 2008's revenue, but international revenue looks to recover in the second half of 2009. An investment tip for the next decade: you want to own shares in companies that have technologies the rest-of-the-world (emerging markets) can't do without, and airplanes, elevators, and air conditioning are in that classification.
Further, United Technologies has ample cash, so look for UTX to continue its stock repurchase program at these price levels ($40-50). The First Call FY 2009/FY 2010 EPS estimates for UTX are $4.64/$4.86.
So look for UTX to soar again as the global economy recovers, unless you think there won't be a need for commercial jetliners, air conditioning, and elevators in the early 21st century.
Stock Analysis: United Technologies is a moderate risk stock. UTX is an investment, not a trade. Consider buying a 25% position in UTX now; then buy another 25% in three months, if U.S. and global economic conditions don't worsen substantially. More-cautious investors should wait until UTX clears and closes above $57 before buying shares. Under any circumstance, don't buy more than 50% of your UTX position in the first half of 2009. Sell/Stop Loss if you were to buy shares in this company: $33.
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Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.
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