As the economy rebounds, home builders and automakers will rebound as well. But companies like Honeywell (NYSE:HON) that make things we don't typically give a second thought to, but which are pretty much necessities like thermostats, air cleaners and safety products, are worth a look too.
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Why This Thermostat Will Rise
A growing economy and the increased construction that should come in time seems like it will play to Honeywell's advantage. But even beyond that, there are some other things that deserve a closer look. For example, the company is, despite the economy bringing a fair amount of earnings to the bottom line. It is expected to earn a sizable $2.83 this year, and $2.65 a share in 2010. That means it trades at just around 13-times this year's estimate, which is cheap, given that it has significant earnings potential in years to come.
Although investors seemed distracted by other high-profile earnings reports, people should pay a little more attention to the third-quarter earnings, which it released this past Friday. It earned 80 cents a share, whereas The Street was looking for just 72 cents. Also, note that the company had only met expectations in the three quarters prior to that.
Street's-Eye View
But what stood out even more about the quarterly release was that it indicated it is looking for $2.85 a share in 2009, and that is good because The Street is at $2.83 per share. Finally, not only is the forward yield around 3.2%, but the fact it actually pays a dividend is a sign of the Honeywell board's confidence in the company and its odds.
Other Underappreciated Companies
Johnson Controls (NYSE:JCI) is engaged in the HVAC business and the security and fire safety solutions business, and as the economy expands, it too can reap big profits. Meanwhile, United Technologies (NYSE:UTX) is in the heating and air conditioning business, among other businesses, and analysts are expecting it to grow earnings at almost 10%, from 2009-2010. Finally, Tyco (NYSE:TYC), home of ADT Home Security, is an underappreciated company that has a good record of beating analyst's earnings forecasts.
The Bottom Line
Honeywell's stocks price will do well going forward. Not only does it trade at a reasonable price-to-expected earnings multiple, but it has the potential to show large growth as the economy expands because of the businesses it is engaged in. The shares would be more fairly valued around $50. (For another take , see Analyst Forecasts Spell Disaster For Some Stocks.)
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