Value Investing – An Industrial Titan Trading On
the Cheap
The Dynamic Wealth Report
September 21, 2009
How To Build One Of America's Greatest Companies
There’s a great story about how one of America’s best companies was
built. However, dig a little deeper and you’ll find an even more
fascinating story. The history of its CEO, the architect and builder of
this amazing company, stands out from most other leaders.
And that leads us to a great investment idea… but more on that in a
moment.
Harry Gray was born poor in rural Georgia. His father left the family
during the Great Depression. And his mother died when he was young. For
this titan of industry, it clearly wasn’t a storybook start to life.
During World War II, Gray served in General Patton’s Third Army. He
earned a Silver Star for his service and attained the rank of Infantry
Captain. While having some success in the military, Gray was destined
for bigger things in the business world.
Gray became an executive at Greyhound, before moving to Litton
Industries. Litton was the preeminent conglomerate in the 1950s and
1960s. And Gray spent almost two decades at the company soaking up
knowledge and experience.
In the early 1970s, Gray got the call to run United Aircraft.
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The company was struggling under huge losses. Their commercial and
military aircraft sales were unprofitable. And the company was
floundering.
One of Gray’s first objectives was to get the company off the hook of
defense contracts. His strategy was simple… expand the business beyond
government sales. The best way to expand… Buy everything in sight.
Gray kicked off the 1970s by going on a buying spree.
It was like watching an Overeaters Anonymous meeting in a chocolate
store… He just couldn’t say no.
He bought companies like Otis, maker of elevators and escalators, and
Mostek, a major semiconductor manufacturer. In 1975, the company was
renamed United Technologies (UTX). By 1985, they reported more than $16
billion in revenue.
Gray earned the nickname “The Grey Shark” on Wall Street. He took
acquisitions to a new level. Some of his acquisitions were hostile… He
clearly wasn’t afraid of a fight.
By growing United Technologies through acquisition, Gray set up a
foundation for the company’s expansion. The company built upon this
foundation and has become even bigger and better.
After building the industrial giant, Gray departed United Technologies
in the late 1980s. Recently he passed away, leaving an incredible legacy
at one of America’s greatest companies.
UTX is now a diversified company whose products include Carrier heating
and air conditioning, Hamilton Sundstrand aerospace systems and
industrial products, Otis elevators and escalators, Pratt & Whitney
aircraft engines, Sikorsky helicopters, UTC Fire & Security systems, and
UTC Power fuel cells.
UTX is a key component in the Dow Jones Industrial Average. They’re the
17th largest manufacturer in the United States. And in 2008, the company
recorded revenues in excess of $58 billion… and only $7 billion was from
sales to the US government.
UTX is a phenomenal company. Last year they reported profits of $4.7
billion.
Just two years ago, the company’s stock traded in the low $80s. Earlier
this year, the stock bottomed out in the high $30s and now trades in the
low $60s. Right now they have a solid dividend yield of 2.5%. Best of all,
their dividend continues to climb. The dividend’s been increased four
times since 2005.
Given the potential price appreciation, dividend yield, and fundamental
growth, I think right now looks like a great time to be buying this
industrial giant.
• Airlines (Up 30%)
The airline industry has been staging a huge rally in the last month.
The return of consumer confidence is pushing these stocks higher despite
rising fuel prices: AMR (AMR), US Airways Group (LCC), and
UAL (UAUA).
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