Value Investing – An Industrial Titan Trading On the Cheap
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.
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.
Category: Stocks
