We pointed out Nortek (NTK) a couple of times in May as part of a story on derivative housing plays that are under-owned but of quality. Wednesday, Melrose Industries acquired Nortek at $86 per share. Important to note, and pointed out before, United Technologies(UTX) - Get Report attempted to acquire Nortek last year for around the same price. Today, the stock is above the Melrose takeout price.
Is the market telling us that UTX is going to follow?
Nortek is a primarily domestic supplier of HVAC solutions and controls. This is a red-hot area in the consolidated HVAC space. UTX's Carrier subsidiary could benefit from product additions in home automation for residential and commercial applications. HVAC is a secularly growing market, mostly driven by technology and energy efficiency retrofits.
Melrose is a buyout company based on London. Its last transaction was selling meter and automation giant Elster, which was recently acquired by Honeywell(HON) - Get Report at a hefty premium. Melrose is using the Elster proceeds to acquire Nortek, and they are telling us that automation and climate efficiency is a must-own area.
So where else can we play home automation and efficiency? Acuity Brands(AYI) - Get Report is a play on lighting controls, but many are already on that bandwagon. Lennox International(LII) - Get Report is another widely loved, pure-play climate company. Both are super-high-quality companies that are enjoying strong secular tailwinds.
Sensata Technologies(ST) - Get Report and TE Connectivity(TEL) - Get Report provide the connectivity technology and sensors to enable proper data monitoring and transfer in areas like automobiles and air conditioners. Itron(ITRI) - Get Report is a large meter and advanced metering play for electric, gas and water utilities.
CalAmp Corp(CAMP) - Get Report and Control4 Corporation(CTRL) - Get Report are small-cap plays on asset efficiency and home automation themes. Smaller areas within Analog Devices(ADI) - Get Report and Skyworks Solutions(SWKS) - Get Report enable the communications for such controls -- but these niches are overshadowed by Action Alerts PLUS portfolio holding Apple(AAPL) - Get Report , mobile computing and telephony.
We are always on the lookout for ways to play good trends with under-the-radar companies. Nortek was one of them. Others will follow.
Editor's Note: This article was originally published at 9:31 a.m. EDT on Real Money on July 7.
At the time of publication, Gentile was short AYI.