Honeywell's Shares Are Headed North

Posted Jan 7th 2010 1:00PM by Joseph Lazzaro
Filed under: Honeywell Intl (HON), Stocks to Buy

Are there any bargains left in this market, for investors who can tolerate moderate risk? Indeed there are, and Honeywell International (HON) is one, which is why I'm reiterating my buy rating for the company's shares, first recommended on February 25, 2009, at a price of $28.26. If you bought HON in February 2009, you're up about 40%.

Here's Honeywell's investment proposition: although most people are familiar with its automation and controls business -- Honeywell makes those round thermostats you see in many homes -- the company's major business is aerospace controls and other avionics (35% of revenue), and here the order backlog is strong, as well -- supported by large orders from commercial airplane manufacturers.

To be sure, that aforementioned thermostat business has been hurt by the downturn in the U.S. housing sector, but longer-term it will not only rebound, it should expand as more homes and buildings strive to increase energy efficiency. Here's one way HON will benefit: co-op complexes in the metropolitan New York City area are replacing apartment thermostats with 'smart thermostats' to reduce energy consumption per unit.

The First Call FY2009/FY2010 EPS estimates for HON are $2.84 to $2.41. That $2.41 FY2010 EPS estimate will likely prove to be low.

Technically, Honeywell's stock chart is strong -- an uptrend, but it does feature above-average volatility. Also, there will be psychological resistance at $50, but this should prove to be a pit stop. Honeywell's shares are headed north.

2010 Outlook: Honeywell is a long-term play, but if you're looking to sell HON within the year, take your profits after it rises to $48.

Finally, the sell/stop loss has been raised to $28 from $14.75, or to just below the entry point; hence, this is an essentially zero-risk trade for your February 2009-bought shares.

Stock Analysis: Honeywell International is a moderate-risk stock. If you've already purchased the company's shares, hold them. If not, consider buying a 25% position in HON now; then buy another 25% in one month, if U.S. and global economic conditions don't worsen substantially. Under any circumstance, don't buy more than 75% of your HON position before March 2010. Revised sell/stop loss if you bought shares in this company: $28.

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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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