Trump's Carrier PR Stunt Underscores Woes at United Technologies

Ever the showman, President-elect Donald Trump is making headlines with his Carrier horsetrading, but as is often the case with the former realty television star, appearances are deceiving.

United Technologies'  (UTX) Carrier division said Wednesday that it received financial incentives from Indiana and a pledge from him to enhance the climate for U.S. manufacturers in exchange for keeping more than 1,000 jobs in the state rather than moving them to Mexico. Vice President-elect, Mike Pence, is governor of Indiana.

Carrier, the heating and air conditioning segment of the defense and industrial conglomerate, didn't place a value on Trump's deal. But rest assured, the incentives would come at the expense of U.S. taxpayers.

The media-savvy Trump has grabbed the spotlight with the Carrier deal. But lost amid his team's self-congratulatory back-slapping is this cold hard fact: The deal will save only about half the 2,100 jobs that Carrier said in February that it would cut by shuttering two Indiana plants.

Just as Trump bashed China during his campaign while buying Chinese steel for his buildings, the Carrier deal masks a larger truth: U.S. manufacturers are increasingly the victims of unstoppable globalization. Investors should avoid the least competitive conglomerates, which brings us to United Technologies.

The company struggles with a huge debt load, with no catalysts in sight to push earnings growth beyond tepid expectations. Those looking to invest in U.S.-based manufacturers are better off with Boeing or General Electric, two blue chips with stellar growth prospects.

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In this overvalued broader stock market, United Technologies is especially susceptible to a steep drop. Indeed, this seven-year bull market is getting long in the tooth and is poised for an overdue correction.

By historical norms, the economic recovery also is due for a pullback. Combined with a strong dollar and persistent wage competition from overseas and there are warning signs for the most vulnerable manufacturers.

If bearish analysts are correct, several fundamentally flawed but overvalued stocks are on the verge of sharp declines. To prevent getting blindsided, investors must weed out the weakest stocks from their portfolios.

Based in Hartford, Conn., United Technologies is a diversified company that develops and provides high-tech products and services to the aerospace and construction industries. With a market capitalization of $88.7 billion, the company's international presence is vast and it has fingers in many pies.

United Technologies makes quality products with storied brand names, but competition from abroad has been fierce.

The company's business divisions aside from Carrier include Otis, which manufactures and services elevators, escalators and moving walkways; Pratt & Whitney, a builder of aircraft engines, gas turbines and rocket engines; and UTC Fire & Security, maker of access control systems, fire detection and suppression systems, and security alarm systems.

United Technologies has become cumbersome and overextended, which often happens to industrial conglomerates, hence its decision last year to sell Sikorsky Aircraft to Lockheed Martin for about $9 billion. The company's plan is to slough off under-performing assets, though ironically, helicopter maker Sikorsky Aircraft is a robust business with a full pipeline of contracts for military helicopters.

European Union leaders on Wednesday announced plans to greatly increase military spending, especially on helicopters. That should prove to be a boon to Sikorsky Aircraft and a missed opportunity for United Technologies.

Among Sikorsky Aircraft's best known aerospace products is the Blackhawk helicopter, considered the "aerial jeep" of the U.S. Army and a popular overseas export.

United Technologies hasn't enjoyed significant revenue growth in more than five years. Margins have remained flat, and free cash flow generation is flagging.

The company's debt-equity ratio also is on the rise and stands at 72.93, high compared with the average of 40.9 for its peers.

United Technologies shares hover at $107. The average analyst one-year price target is $112.25, which would represent a gain of just 4.2%.

Investors' money is better spent on other growth opportunities with less risk and more upside potential.

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John Persinos is an editorial manager with Investing Daily. He is also an analyst with the aerospace consultancy Teal Group.

At the time of publication, Persinos owned stock in BA.

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