August 9, 2022

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We are buying more of this industrial holding because the shares are cheap

Honeywell International Inc. signage is displayed on a monitor on the floor of the New York Stock Exchange (NYSE) in New York.

Michael Nagle | Bloomberg | Getty Images

(This article was sent first to members of the CNBC Investing Club with Jim Cramer. To get the real-time updates in your inbox, subscribe here.)

After you receive this alert, we will be buying 50 shares of Honeywell (HON) at roughly $200.54. Following the trade, the Charitable Trust will own 550 shares of Honeywell. This buy will increase HON’s weight in the portfolio from about 2.42% to 2.65%. 

Honeywell was a laggard in 2021 as some of its segments like Aerospace and Performance Materials and Technologies (oil & gas) had sluggish recoveries,  weighing down the explosive growth in Safety and Productivity Solutions. But we think the time and price is right to get more optimistic about this industrial.

Honeywell’s fundamentals should improve next year, and accelerating organic sales growth is on the table as the aerospace rebound picks up and the three other reporting segments contribute positive organic sales growth. And despite supply chain and logistic challenges, margins are expected to expand in all four segments next year.

Trading at a discount:

From a valuation perspective, the stock is entering 2022 at a much less demanding spot than it did into 2021. At this time last year, one worry with owning Honeywell was that its valuation was expensive and too stretched, with shares trading at a 5% to 10% premium to its group. The conversation today could not be any more different.

Due to HON’s underperformance this year — a rarity for an industrial of this quality, by the way — Honeywell now trades at a 5% to 15% discount to the same group. These were numbers pointed out in a research note published earlier this month by JPMorgan analyst Steve Tusa, who has Honeywell on his Analyst Focus List. As the numbers show, what once was an expensive stock has become cheap. We like that set-up for next year. 

Thinking ahead, Honeywell is expected to host an Investor Day meeting in March. In the same research note, Tusa called this meeting a catalyst. In volatile times, we like stocks with catalysts because, if successful, the event will quickly improve investor sentiment and help the stock break free from the action in the broader market. From what to expect at the event, Tusa wrote he thinks management will provide “a more readily digestible growth algorithm” and discuss how they plan to use their balance sheet for “offense.” We are looking forward to learning more about the opportunities in software and quantum computing.

Bottom line: Three reasons to buy

https://www.cnbc.com/2021/12/22/cramers-investing-club-we-are-buying-more-of-this-industrial-holding-because-the-shares-are-cheap.html