This "Eureka Moment" Tech Stock Taking a Page from Apple's Playbook
Companies / Investing 2015 Feb 18, 2015 - 03:08 PM GMTBy: Money_Morning
About two weeks ago, my local alarm company came out to upgrade my backup cellular transmitter. I got a package deal that also included installation of the advanced touch-screen control panel.
As a gadget and security geek, that touch-screen blew me away. It includes a mobile app for remote monitoring, and it seamlessly integrates with the system's digital surveillance video.
I ended up ordering three more motion-sensitive, full-color surveillance cameras. Plus, I ordered a second control panel.
And then I had an "eureka" moment…
Not only was this home security equipment of the highest quality and the most innovative technology – but its developer would be a great investment for you folks.
So today, I'm going to show you how you, too, can cash in on your own "eureka moments."
And then I'll share with you why you should take a good look at the maker of my security system.
For starters, its shares are set to beat the market handily over the next two years…
"I Have Found It!"
By definition, a eureka moment isn't something you come across every day.
But when you do, it can be an extremely powerful idea. You suddenly realize there's an investment idea staring you in the face and there's much more to it than it seems.
You've probably had these before yourself.
You might call it an "aha!" moment or the "shock of recognition."
But I call these brain sparks "eureka moments" in honor of the tech sector's California heritage in Silicon Valley. "Eureka," after all, is what the Forty-Niners exclaimed whenever they found gold – and it's the state's motto.
The beauty of the "eureka moment" is that you find a great long-term investment – and you get out in front of Wall Street and other investors.
You may not realize it, but if you're a longtime Strategic Technology Investor reader, then you've been profiting from one of my "eureka moments" for a while now.
I've been a fan of products from Apple Inc. (Nasdaq: AAPL) for 30 years. But I didn't become a "raging bull" on the company's stock until I had a "eureka moment" of my own.
A few years ago, a business associate of mine bought an iPhone. He became so enamored with this now-iconic tech product that he stormed into his office the next day and lobbied the company to swap out all its PCs for Macs.
When he told me this story – eureka! – I knew right then that Apple was poised for a massive run.
It meant that Apple had created a powerful piece of technology that was not just about glitz – it was the entry point into a larger user experience.
And that's exactly how things have played out. The latest iPhones, iPads, and Macs seamlessly work together as part of a tech ecosystem that competitors have failed to copy.
Back in October 2013, I told you Apple was headed to $1,000 a share ($142.85 post-split). Since then, I have said it would make it there by Labor Day 2016.
And Apple shares have gained nearly 68% and are trading around $127.
Not Just "Buying What You Know"
There is more to "eureka-moment investing" than just subscribing to the view of all-star investor Peter Lynch and "buying what you know."
In his 1989 book, One Up on Wall Street, Lynch tells his readers that you can get in front of Wall Street just by investing in the products you use and find valuable, especially if they're new (since there's more upside). He says that gives you far more insight than talking with a CEO or industry analysts.
For technology investors, that's a good idea… on paper. Beyond finding a terrific product, you have to do your research. You have to make sure your "eureka" also meets all five rules of my Tech Wealth Secrets.
As an example, Samsung Electronics Co. Ltd. (OTCMKTS: SSNLF) makes a great smartphone, but I would never invest in that stock.
The South Korean company is rapidly losing market share to Apple because it has failed to make the user experience central to its family of products.
And while I always fly Southwest Airlines Co. (NYSE: LUV) when I can, and I love the company's business model, I would never recommend its shares – nor those of any airline where margins are extremely thin.
But I've done all the research on my latest eureka moment, and I'm ready to say that you folks should take a look at the maker of my security system…
… Honeywell International Inc. (NYSE: HON).
More than Meets the Eye
You probably already know Honeywell. It's a diversified global tech firm with deep expertise in aviation, defense, and performance materials.
But you may not know that Honeywell has one of the best CEOs in the business, and several catalysts are set to ignite the stock over the next three years.
This is a company that meets the mandates of Rule No. 1 of my five-part system: "Great companies have great operations."
And that almost always starts with strong leadership.
When Dave Cote became CEO of Honeywell back in 2002, the Morristown, N.J.-based company was a laggard. A takeover attempt by General Electric Co. (NYSE: GE) had just ended in failure, leaving Honeywell adrift.
So, Cote adopted a broad restructuring plan. He dropped unprofitable lines, added new growth businesses, and slashed overhead.
Honeywell shareholders were richly rewarded. Over the past decade, the company's shares have gained 170%. That's more than double the Standard & Poor's 500 Index's return over the period of 73%.
No wonder he's been awarded so many accolades.
Institutional Investor last year named Cote the "Best CEO" in Honeywell's segment. In 2013, Chief Executive magazine named Cote "CEO of the Year." And Barron's has recognized him as one of the world's best CEOs.
Cote has plans to improve his company's products and performance – and share price – and last year announced a five-year strategic plan to do just that.
And he's taking a page out Apple's playbook.
The idea behind the "Honeywell User Experience," or HUE, is to make products that improve the customer experience with easy-to-use systems.
In other words, Honeywell is creating a tech "ecosystem" similar to Apple's. And my experience with Honeywell's "Tuxedo" touch-screen is part of a much larger dynamic designed to filter throughout the company's entire global enterprise.
But Honeywell has more than just the HUE mandate to bolster its stock.
Consider that, under the strategic plan, the company intends to make a series of acquisitions of up to $10 billion. It hopes to add up to $8 billion in annual sales by 2018.
The new war chest more than doubles the $4 billion it spent on M&A in the previous five years. The coming wave of mergers should serve as a long-term catalyst.
Honeywell expects HUE to run through the end of 2018. This gives the stock plenty of ignition points as each new deal is announced.
At the same time, Honeywell is adding shareholder value by buying back up to $5 billion of its stock. It also plans to keep increasing the dividend.
For the fourth quarter, Honeywell announced it had boosted its dividend by 15% to $2.07 a share. The stock now has a 2.1% yield.
During the period, it had adjusted earnings of $1.43 a share, a 15% increase from the year-ago quarter on basically flat sales.
I believe the stock will continue to benefit from the firm's improved efficiencies with higher earnings per share.
So, even if revenues remain flat this year because of the strong dollar's effect on overseas sales, the stock still stands to gain.
And remember, we have a company run by a top-notch CEO who's committed to making money for his investors.
That makes Honeywell the kind of "eureka moment" investment you can count on for the long haul.
The beauty of the "eureka moment" is that you find a great long-term investment – and you get out in front of Wall Street and other investors.
Money Morning/The Money Map Report
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