Don Thurston Blog

Braking News?

Business sections and financial websites are filled with news covering all aspects of every public company’s affairs. A failure to look beyond the headlines may lead one to sell their stakes, or put the brakes on their investment as it were.

Take, for instance, United Technologies [NYSE, symbol UTX ], a large diversified US-based corporation. It operates in sectors ranging from aviation to air conditioning (and in between includes, for example, elevators, health care and fuel cells). Recent headlines pertaining to some of these sectors are:

  • Fuel cell profits fail to fire up
  • U S house members plan to use GE-Rolls engine for F-35
  • Bin Laden’s death could push defense cuts

The news doesn’t paint a rosy picture. It  might even be cause  to question the wisdom of  owning UTX shares.

In our view news items such as these, while interesting, most often offer little insight into the quality of the company’s shares. Indeed, the numbers tell a different story. The dividend yield is about 2%, the price earnings multiple is 16 times, and the return on shareholder’s equity remains in the 20% range.

It is essential to distinguish day-to-day issues from significant developments.

For example, it takes large, and uncertain, leaps to go from the death of Bin Laden, to a cut in defense spending, to a drop in UTX revenues. Furthermore, competition between Pratt and Whitney (UTX’s aviation division), and GE have always been fierce. It is unreasonable to expect one or the other to secure every contract. Finally, fuel-cell development is a long-term project; UTX will not be deterred by a short-term setback.

UTX remains a high-quality company, strongly represented by each division. It is built on a long history of excellent results. We do not currently hold the stock in our portfolio, as the current price is too high for our liking. Perhaps though, with enough bad-hair days such as these, investors will be inclined to sell the stock, so we can once again add it it to your holding.

Thanks for reading!

I would love to hear your thoughts. Drop me a line in LinkedIn or contact me directly.

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