Honeywell International (HON -0.19%), ABB (ABBN.Y 4.96%), and UPS (UPS -0.45%) are three companies that are attractive to long-term investors. All three companies have management teams with the opportunity and commitment to generate significant value for investors for many years. Moreover, they already have actions in place that will result in substantial profit growth.
1. Honeywell International
Mature industrial conglomerates don't always have to be boring, low-growth affairs. Honeywell, for example, is teeming with growth initiatives, which management calls its "breakthrough initiatives." They include Honeywell's software business, Honeywell Connected Enterprise, which customers can use to transform their businesses digitally. Examples include generating efficiencies in the performance of a building's systems using a mass of data gathered through wireless-enabled sensors to create actionable insights.
Quantinuum is a high-growth quantum computing company majority owned by Honeywell that management believes will generate $2 billion in annual sales by 2026. Honeywell Unmanned Aerial Systems and Unmanned Aerial Mobility make avionics and propulsion systems for unmanned cargo vehicles and air taxis. The company recently inked a deal with Archer Aviation to provide technology on Archer's aircraft. Finally, its Sustainable Technology Solutions (STS) is a leader in renewable fuels, energy storage technology, and advanced plastics recycling. Management estimates STS will grow revenue from $200 million in 2021 to $700 million by 2024.
As a result of these growth initiatives, management earlier this year upgraded its estimate for long-term annual growth to 4%-7% compared to a previous target of 3%-5%. Trading on a forward price-to-earnings ratio of less than 18, Honeywell is a good value for its growth prospects.
2. ABB
This European industrial giant hasn't always been the best-run company in the industrial sector, but it has always owned an exciting collection of businesses. For example, it has one of the leading robotics companies in the world,and it's also one of the top players in discrete (or factory) automation and process automation (the processing of raw materials). These are all areas of growth in the new economy that emphasizes automated production and the use of digital technology to improve operational performance.
ABB benefits from the fact that the advancements in digital technology make automation more attractive, and increased adoption of automation increases digital adoption, increasing investment in digital technology. Furthermore, ABB's electrification solutions (including an EV charging business) are well positioned to take advantage of the ongoing trend toward electrification.
ABB has long had great businesses, and since taking over in 2020, CEO Bjorn Rosengren has put the company on a pathway to realizing its value through restructuring. It's a combination of operational restructuring (ditching ABB's former matrix structure), selling off non-core businesses, and focusing on increasing margins at the company. If Rosengren can realize this aim, then there's a substantive upside opportunity with the stock. Trading at less than 16 times Wall Street analysts' earnings estimates for 2023, and with plenty of long-term growth potential, ABB is an attractive stock.
3. UPS
It's a bit of a myth that Amazon's move into delivery threatened the earnings potential of UPS and other delivery companies. In reality, there are more than enough e-commerce and other deliveries to go around, and UPS' job is to maximize the profitability of doing so. Armed with this knowledge, CEO Carol Tomé's "better, not bigger" framework makes perfect sense -- UPS is not chasing volume for volume's sake. Instead, it's maximizing the profitability of its deliveries. One way it's doing this is through its transformational strategy of building relationships with targeted markets, including small and medium-sized businesses and healthcare companies.
There are concerns about its near-term prospects due to its exposure to the overall economy. However, the evidence is that UPS' strategy is working. For example, its delivery volumes have actually been declining even as revenue and profits keep growing. Therefore, if Tomé continues to increase margin and earnings in the coming years, UPS will be a smart buy for investors. UPS trades at less than 13 times Wall Street earnings estimates for 2023 and represents a good value for investors willing to stomach some near-term downside risk.
