Honeywell: A Company That Is Properly Positioned For 2019

Jan. 14, 2019 11:35 AM ETHoneywell International Inc. (HON)REZI, GTX2 Comments
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WG Investment Research


  • Honeywell's stock has underperformed the broader market over the last year, but I believe that HON shares are a great long-term buy at today's price.
  • Additionally, the recent spinoffs have the potential to be a major catalyst for Honeywell's stock over the next 12-18 months.
  • I am long Honeywell, and I have plans to grow my position in 2019.
  • This idea was discussed in more depth with members of my private investing community, Going Long With W.G.. Start your free trial today »

Honeywell (NASDAQ:HON) is a core holding in the R.I.P. portfolio, and the stock has performed well over the last 3 plus years. More recently, however, HON shares have underperformed the broader market by over 6 percentage points.

ChartHON data by YCharts

The recent underperformance for HON shares has created a long-term buying opportunity because, in my opinion, this industrial conglomerate is well-positioned for 2019 and beyond. Moreover, the recent spins could potentially be a major catalyst for the HON shares in the current year.

The Spins Should Act As A Catalyst

In late 2018, Honeywell spun off its Transportation Systems business, Garrett Motion (GTX), and its Homes and Global Distribution business, Resideo (REZI). If investors remember correctly, Honeywell's management team remained believers in the long-term business prospects of both spin-off companies, but, as they put it, Honeywell is better positioned without the two businesses in the fold. It is a classic case of addition by subtraction. For example, Honeywell raised its full-year 2018 guidance after the spin-offs were announced.

Source: 2018 Outlook Presentation

The spins will not only allow for Honeywell to allocate capital in a more efficient manner to core businesses but, more importantly, they will also give Honeywell the potential to return a tremendous amount of capital to shareholders.

In addition, Garrett Motion and Resideo entered into agreements related to legacy liabilities, so Honeywell's management team will be able to better manage/plan for future expenditures. Simply put, Honeywell is better off without Garrett and Resideo. Honeywell's business has been transformed, and, if you ask me, the company is better positioned for 2019 and beyond. It helps that the recent results (and guidance) support this thought.

Full disclosure: I hold positions in both Garrett Motion and Resideo in the R.I.P. portfolio.

Recent Results, More Of The Same

Honeywell has

ChartHON PE Ratio (Forward) data by YCharts

This article was written by

WG Investment Research profile picture
Our President and CIO is a CPA with experience in public accounting and the financial services industry. He earned his Master of Accountancy degree in 2008 and his B.S. in Business Management in 2007. He is also a Level III CFA candidate. He has been intrigued by the market from the start. Over the years, he has learned that long-term investing is a discipline that, if followed, will help contribute to building lasting wealth. As such, most of our articles will be about the investments that we plan to hold for at least 3 to 5 years, as long as the company's story does not change. As a Seeking Alpha contributor, our main goal is to write about the companies that are key to our portfolio with the hope of promoting discussion (for or against the investment) from others within the SA community.Please visit our website for more information about W.G. Investment Research LLC.

Disclosure: I am/we are long HON, GTX, REZI. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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