The Rising Influence of Rising Affluence

[DewDiligence]

Commentary on UTX from Barron’s interview with analyst, Heidi Wood:

http://online.barrons.com/article/SB50001424052748703365704576624933812428772.html

I just upgraded United Technologies. It is one of the best-managed companies in my aerospace and defense universe. They have embarked on a multi-decade strategy of building franchises where they are No. 1, 2 or 3 in their market. Even better, they have a strong aftermarket business. That cushions them in downturns, and they get 100% of upside in upturns.

There is Otis Elevator. No one, even in the middle of a recession, elbows their buddy and says, "Let's walk 28 flights of stairs" if an elevator is broken [LOL]. Elevators need to be maintained, irrespective of the state of the economy.

At Pratt & Whitney, the engine maker, they have done a phenomenal job, especially for a conglomerate, of finding ways to fan entrepreneurial spirit and develop innovative products. Engines are what allow an airliner to defy gravity at 30,000 feet. Even if the airlines are not making a lot of profit, flight-critical things like engines are where you are going to be very circumspect about cutting back. So if they don't spend in year one, you can anticipate that as you get into years two, three and four, their spares business becomes more and more inevitable.

Going back to my tragic flaw of being too early, we upgraded Goodrich on that aftermarket anticipation in 2010. I've been waiting for the aftermarket turn ever since, because the airlines have been holding off. But it is inevitable. So from 2012 to 2015, if Goodrich is allowed to be acquired, then United Technologies is going to enjoy a multiyear aftermarket revenue stream.