MILLBURN, N.J. (Stockpickr) -- I am in the process of renovating a building previously operated as a Chinese Restaurant and transforming it into a new themed restaurant. Since purchasing the building, located in the Village of Lake George, N.Y., my business partners and I have had to replace nearly all existing equipment and upgrade the entire building, which was in a state of disrepair.
This is no small undertaking. We have had to essentially start from scratch with the four walls and two ceilings that were in existence. With a budget in mind and careful planning, we are well into the process of renovating the building in anticipation of an April 30 grand opening.
The project started in the dead of winter in one of the coldest regions of the Northeast, so it was imperative to begin by installing a new HVAC system. We sent the project out to several contractors for bids. The winning bid was submitted by a small independent business owner.
This article will explore some
When it comes to HVAC, there are two companies, both of which are public, that provide some of the best products in this segment:
. Lennox International specializes in HVAC and refrigeration equipment for both commercial and residential use.
Despite suffering somewhat from the housing and credit crisis of 2007-2009, Lennox' business has recovered and is set to grow earnings at a mid-20% rates over the next two years. The stock sells for 21 times trailing earnings and 17 times forward earnings, both at a discount to that mid-20% growth rate in earnings that is expected. Should we have a pickup in commercial or residential construction or renovation, then earnings growth rates for Lennox are bound to be adjusted higher. The company has a good balance sheet with a small amount of debt, about $300 million offset by about $170 million in cash and equivalents. In addition, Lennox pays an annual dividend of 60 cents per share, equating to a 1.2% annual payout.
Lennox is one of TheStreet Ratings'
and was one of
My other favorite HVAC brand is York, whose products are produced by Johnson Controls. Johnson Controls is a more-diversified company than Lennox as it goes beyond HVAC into instrumentation and components for the automotive and aviation industries. Unfortunately, the Great Recession not only affected demand for HVAC but was also a low point for the automotive industry. Thus, Johnson Controls felt the impact of the recession to a greater extent than did Lennox.
Johnson Control's stock has yet to regain its 2007 peak prices, but if you believe, as do I, that the automotive and aerospace industries are poised for a cyclical upturn, then Johnson Controls may provide better opportunity than Lennox over the next few years. Johnson Controls is expected to grow earnings by about 28% in 2011 and 22% in 2012. The stock sells at 21 times trailing earnings and 16 times forward earnings estimates. Johnson Controls carries about $2.1 billion of net debt but has been steadily paying down that debt over the past few years. The company pays an annual dividend payout of 1.5% which is comparable to that of Lennox.
Johnson Controls is one of the
. In the most-recent reporting period,
reported a new 2.3 million-share position in the stock.
Of course, we also needed a new hot water system for the building. We decided to go with the latest in hot water technology: tankless water heaters. These systems are also referred to as on-demand water heaters. Tankless water heaters use less energy and takes up less space than conventional water tanks. We purchased a Rinnai tankless system, which is manufactured by Rinnai Japan. Companies such as Rheem, Takagi and Bosch also produce this new technology, but they are not owned by publically traded companies in the U.S.
, an American manufacturer of major home appliances and a leader in water technology, has entered the market for tankless water heaters. One of the few remaining conglomerates left in the U.S, GE has a wide variety of businesses in aerospace, health care, technology, industrial equipment, infrastructure, financial services and media. GE was impacted by the credit crisis and recession pretty much across the board and as a result had to tap the TARP (troubled asset relief program) in order to solidify its balance sheet and stabilize its financial condition during the credit crisis.
Since then, GE has turned itself around both operationally and fiscally and is well on a road to recovery and earnings growth. Most recently, GE spun off its NBC Universal unit into a partnership with
(CMCSA). Demand for GE products and services are ever increasing in the emerging markets. I expect GE to increase its dividend which now stands at 2.70% in the future and continue to clean up its balance sheet. With earnings growth expected in the upper teens to low 20s by percentage in the next few years, GE is still undervalued relative to my $25 price target which is reasonable to expect for the end of 2011.
GE is one of the
and showed up on a recent list of the
To see these stocks in action, check out the
-- Written by Scott Rothbort in Millburn, N.J.
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At the time of publication, Rothbort had no positions in stocks mentioned, although positions can change at any time.
Scott Rothbort has over 25 years of experience in the financial services industry. He is the Founder and President of
, a registered investment advisor specializing in customized separate account management for high net worth individuals. In addition, he is the founder of
, an educational social networking site; and, publisher of
. Rothbort is also a Term Professor of Finance at Seton Hall University's Stillman School of Business, where he teaches courses in finance and economics. He is the Chief Market Strategist for The Stillman School of Business and the co-supervisor of the Center for Securities Trading and Analysis.
Mr. Rothbort is a regular contributor to
TheStreet.com's RealMoney Silver
website and has frequently appeared as a professional guest on
Fox Business Network
and local television. As an expert in the field of derivatives and exchange-traded funds (ETFs), he frequently speaks at industry conferences. He is an ETF advisory board member for the Information Management Network, a global organizer of institutional finance and investment conferences. In addition, he is widely quoted in interviews in the printed press and on the internet.
Mr. Rothbort founded LakeView Asset Management in 2002. Prior to that, since 1991, he worked at Merrill Lynch, where he held a wide variety of senior-level management positions, including Business Director for the Global Equity Derivative Department, Global Director for Equity Swaps Trading and Risk Management, and Director for secured funding and collateral management for the Global Capital Markets Group and Corporate Treasury. Prior to working at Merrill Lynch, within the financial services industry, he worked for County Nat West Securities and Morgan Stanley, where he had international assignments in Tokyo, Hong Kong and London. He began his career working at Price Waterhouse from 1982 to 1984.
Mr. Rothbort received an M.B.A., majoring in Finance and International Business from the Stern School of Business, New York University, in 1992, and a B.Sc. in Economics, majoring in Accounting, from the Wharton School of Business, University of Pennsylvania, in 1982. He is also a graduate of the prestigious Stuyvesant High School in New York City. Mr. Rothbort is married to Layni Horowitz Rothbort, a real estate attorney, and together they have five children.