Honeywell Safe in Bear Market
This article is from the archive of The New York Sun before the launch of its new website in 2022. The Sun has neither altered nor updated such articles but will seek to correct any errors, mis-categorizations or other problems introduced during transfer.
JORDAN OPPORTUNITY FUNDS
COMPANY: Honeywell International Inc.
TICKER: HON (NYSE)
52 WEEK RANGE: $32.68-$44.48
MARKET CAPITALIZATION: $32.73 billion
Jerry Jordan is the portfolio manager of the Jordan Opportunity Fund, a non-diversified “no load mutual fund” that seeks capital appreciation. Mr. Jordan spoke with Katharine Herrup of The New York Sun about why Honeywell is a good bet if the market slows down or goes into a recession.
What does the company do?
They make ACs, air filters.That’s not where their money is made though.The money is made in the bigger industrial stuff – transportation equipment, etc. It’s not a retail consumer. Honeywell is a diversified, multinational equipment company.They are like GE – they provide equipment to a whole range of companies.
Why do you like the stock?
It’s a fairly safe stock in a market environment like this one but will have some juice in it when the markets turn. While I am concerned that the economy on the whole is going to slow down, the beauty of Honeywell is that they play into all of the infrastructure products that are needed around the entire world – South America, North America, Europe, and Asia. There is a lot of nonresidential building, infrastructure stuff that is going to go on.
Honeywell also gets involved in aerospace,which is poor in the U.S.,but good in all the emerging countries – Brazil, Russia, India, and China – the BRIC countries. Revenues for Honeywell are still growing, the stock is cheap, it’s growing faster than the S&P, and they can buy back stock. I think the dollar gets weaker over time, and this benefits Honeywell. What you do know is that the dollar ought to go lower because there are too many things going wrong for the U.S.from a currency perspective. When we have a deficit, and the government keeps borrowing money, historically what has happened is that the prices are going to go the wrong way.
We are believers that this commodity bull market is over for a while and as raw material prices go back down, it will help a company like Honeywell’s margins. This is one reason to keep an eye on companies like GE, Emerson, Caterpillar – all these industrial companies that benefit from multiple expansion even in a bear market.
What do you think the stock is worth? Do you expect its value to increase?
It could easily be a $50-$55 stock over a year. It’s at about $40 right now.
How do you expect Honeywell to perform going forward?
I think Honeywell is going to do great. You pay up for stocks that are growing faster than the average stock. If you’ve got a stock growing at about 15% like Honeywell and the market growing at 25%, you wouldn’t be all that interested in the stock and that’s why I think Honeywell has lagged so much in the past 18 months. It’s been growing slower than the market, but I believe that the roles will reverse. The perception has been that the stock is not growing fast enough and people don’t like large cap stocks.
I think Honeywell will continue to be a 12-14% grower in the next 18 months, and the S&P might only grow at 4% and therefore Honeywell’s earnings are worth a lot more than they were, so they ought to get a higher PE multiple than the rest of the market.
What are the risks?
Risk is 10% down and 25-35% up. Another risk is global recession and then all bets are off because everyone’s earnings are going in the toilet. Historically, about every four years the U.S. economy slows down – half result in recession and half result in a slower GDP. We have an inverted yield curve, we have inflation risks, we have a stock market rollover – these are all risks. Overall, global equity weakness would be a risk. But Honeywell is a multinational diversified company, so you are diversifying your risk.