UNITED TECHNOLOGIES ACTING AS A DRAG ON THE DOW – IS THIS LIKELY TO CONTINUE?

United Technologies

shareholders have had to go into endurance mode as the stock is apparently going through an extended consolidation / corrective phase following the nice rally that took place from mid-2012 until the Spring of 2014. How are the fundamentals with UTX and how long will this correction last? What the bulls see in UTX... • Cheap valuation metrics o Price to book of 2.87 o Price to sales of 1.51 o Enterprise value that trumps its market capitalization • 10% net profit margins that translates to over $4.3 billion in annual levered free cash flow • Current ratio of 1.22 and a debt-to-equity ratio of around 56% • A nice dividend yield of 2.2% What the bears see in UTX… • Relatively bearish technicals that project UTX shares down to $103.79 and possibly even down to $97.60. • Very modest revenue growth of only 4% expected for 2015 • Expected earnings growth of only 8.26% – which makes the seemingly cheap P/E of 15 not quite as attractive as it was on the surface. Technically speaking on UTX… United Technologies sets up bearish in the short-term according to technicians. Resistance comes in at $110.34 and support comes in at the August low of $103.79 – for starters. If that level fails – which is entirely possible given the increased volatility in the market recently – the next two levels of support come in at $99.79 and $97.60. Overall… The bears may have the edge in the short-term with the possibility of the stock tumbling back down to at least $103.79 and possibly even down to the long-term uptrend line way down in the mid $90s if things get really bad. However, if support at any of the levels listed above or even the $93 - $94 range (where the uptrend line comes into play), the stock could turn back to the upside and mount a nice rally. The key here with UTX is to try to buy the stock at or near support and to honor stop loss triggers should they be hit.