Honeywell's Train Is Leaving the Station

Posted Mar 19th 2010 2:30PM by Joseph Lazzaro
Filed under: Honeywell Intl (HON), Stocks to Buy

It's probably now or never regarding positioning yourself for an outsized gain in this economic expansion with Honeywell International (HON), first discussed here on February 26, 2009 at a price of $26.86.

A February share dip to about $37 created a value opportunity extraordinaire with Honeywell, and the shares have since accelerated out of those lows.

And with good reason. Here's HON'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 (38% of revenue) 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 FY2010/FY2011 EPS estimates for HON are $2.39 to $2.93. Each EPS estimate looks about 10% low, according to my analysis.

Technically, as noted, Honeywell did dip below the key, 50-day moving average, but that retreat was brief, shares are now comfortably back above the 50-day MA, and there is scope to $60. HON will encounter some resistance at $50, but the calculation here is that the uptrend will prevail.

2010 Outlook: I view Honeywell as a long-term play, but if investors are looking to sell HON within the year, it's probably best to take your profits after it rises to $57-59, if it fails to clear $60.

Stock Analysis: I consider Honeywell International to be a moderate-risk stock. If an investor has already purchased the company's shares, I'd hold them. If not, I'd 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, I wouldn't buy more than 75% of my HON position before April 2010 and I'd put a sell/stop loss at: $28.

Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.

Tags: HON