FOOL PLATE SPECIAL
It's the largest "tech company" that most people have never heard of, and yet United Technologies is a member of the Dow Jones Industrial Average. The company reported second-quarter earnings that beat expectations and were 15% higher than last year's, quite an accomplishment given the current economic environment. Now that the GE/Honeywell merger has been blocked by Europe, the former Honeywell suitor may make another attempt.
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Industrial conglomerate United Technologies (NYSE: UTX) may be the only "tech stock" that has actually gained ground in the last year and a half, its shares up almost 40% in a time when other companies are just praying that the bottom comes soon. You mean you've never heard of United Technologies? Well, it's a Dow Industrial component, and it's also the parent company for Otis elevators, Pratt & Whitney engines, Carrier air conditioning, Sikorsky helicopters, Hamilton Sundstrand aerospace, and International Fuel Cells. Maybe you're familiar with some of those. If you use any type of public transportation, chances are you came across something made by United Technologies. Oh, and if your transportation needs today included a Sikorsky helicopter -- then how cool is that? Well, maybe you don't think the stuff United Technologies is involved in qualifies it for the realm of "tech stock." Certainly air conditioners are not that exciting, but it seems like much of the investing world got thrown into a tizzy last year over fuel cell companies like Ballard Power (Nasdaq: BLDP). Well, United Technologies competes there as well, and its IFC subsidiary has deals with Hyundai, BMW, Royal Dutch Petroleum (NYSE: RD), and others to develop its Proton Exchange Membrane technology. Still not impressed? That's fine, but recognize this: United Technologies is making money, and gobs of it. As an investor, I don't particularly care if it makes doilies, as long as it has operations that create money for shareholders. And early this morning United Technologies reported another quarter that should cause investors to sit up and take notice, as it announced second-quarter earnings per share that were 16% higher than the same quarter last year, on revenues that were up by 5%. United Technologies also reaffirmed previous guidance that its earnings should continue at about 15% above last year's levels, which is fairly remarkable in an environment of decreased capital spending. This is the continuation of a tendency to grow its top line not spectacularly, but consistently. At a trailing price-to-earnings ratio of 20, United Technologies is not cheap. On a cash-flow basis, the company does much better, creating almost $0.08 of cash it could return to shareholders for every dollar it brought in during 2000. And return it has: United Technologies has consistently upped its annual dividend (current yield 1.2%), and it has also spent more than $365 million in the last six months alone buying back its own stock, thus decreasing the number of shares across which its earnings must be divided. One big unknown in the not-so-distant future for United Technologies is whether it will make another bid for Honeywell (NYSE: HON) now that Honeywell's merger with General Electric (NYSE: GE) has been blocked by European regulators. United Technologies made an offer for Honeywell last fall, then lobbied hard for the EU to block the GE merger. One line of thought is that United Technologies may actually think twice about going down the merger road again, as its lobbying efforts may have made it aware of what hurdles it would face. In addition, one of the big reasons United Technologies wanted Honeywell in the first place was to keep it out of the hands of GE. There is no longer any worry of this taking place, and as such we might expect the company to take its time in making any new offer. But for now, United Technologies seems to be doing just fine on its own. It seems many investors, in the process of searching for the next big thing, miss the obvious industries with steady or growing demand. United Technologies not only serves several markets with just this characteristic, but in some cases also dominates them. Say, say, say, what you want, but don't play games with Bill Mann's affection. Bill owns shares of General Electric. His other stock holdings can be viewed online, as can The Motley Fool's disclosure policy.
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