United Tech Poised for Upside Surprise

If you're looking for stocks that have the best chance of turning in surprisingly great third-quarter numbers, look no further than United Technologies (UTX - commentary - Cramer's Take).

Despite rising oil and raw material costs, concerns over a slowdown in China and the loss or cancellation of some high-profile aerospace contracts earlier this year (like the Comanche), investors can rely on the company to post solid results. And in the scheme of things, the challenges United Technologies faces this year are quite manageable when one considers that the company weathered the post-9/11 economic downturn with barely a hitch. Indeed, most of United Technologies' core end markets -- residential and commercial construction, commercial aerospace and defense -- are now in a recovery mode. This could put current third-quarter consensus estimates of $1.41 per share, up 11% from last year, on the conservative side.

Yet United Technologies' shares still not only fail to get the respect they deserve, but they don't seem to reflect the possibility of better-than-expected third-quarter results, either. The stock is barely in positive territory for this year, lagging both of its peer groups -- the Dow Jones Aerospace index has banked an 11% gain, while the Dow Jones Diversified Industrials index is up over 8%.

And although the company has an arguably better track record than many of its peers, its stock is still cheaper. United Technologies trades at a price-to-earnings ratio of just 15.5 times the 2005 consensus estimate of $6.12 (which will likely prove to be low if the global economic recovery continues), compared to the 17.8 average P/E of other diversified industrials, namely Honeywell (HON - commentary - Cramer's Take), Textron (TXT - commentary - Cramer's Take), General Electric (GE - commentary - Cramer's Take) and Emerson (EMR - commentary - Cramer's Take).

There's little doubt that, for the third quarter anyway, United Technologies' end markets were showing some strength. Although major airlines flirt with bankruptcy, a recovery in air traffic typically translates into higher repair and maintenance business.

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Odette Galli is a freelance columnist for RealMoney.com. She has been a writer at SmartMoney Magazine and a senior manager at Ark Asset Management, where she co-managed $3 billion in institutional assets. In addition, Galli was a senior vice president at J & W Seligman. At the time of publication, she had no positions in any of the securities mentioned in this column, although holdings can change at any time. Under no circumstances does the information in this commentary represent a recommendation to buy or sell stocks. She welcomes your feedback and invites you to send your comments to [e-mail].