The first day of the Electrical Product Group (EPG) conference brought with it different investment themes. Some of them were new while others were reinforced at this occasion. Growth in China remains one of the old investing themes. However, being old doesn’t mean that it doesn’t come with high potential gains. In fact, since the start of 2013, people have been waiting for the Chinese economy to accelerate to make money on companies that are largely exposed to China.
A low risk story
On current 2013 end-market trends, Honeywell International Inc. (NYSE:HON) remains cautious as most end markets are “going sideways.” China has not been an exception. However, still investors are bullish on growth in China since the performance of this region has been much better than that of Europe. Since the start of the year, the company has been expecting incremental sales from China given higher turbo gas penetration in that region.
For 2013, the company expects 6% growth in revenue from China. This is more than the growth expected in the US (2% only). As far as Europe is concerned, the company is seeing European orders positive but thinks it is still too early to get more bullish. It could just be a “dead cat bounce” given the amount of recent de-stocking. Honeywell said that overall, Europe could show flat growth over the next three years on an annual basis.
Overall, Honeywell International Inc. (NYSE:HON) has been a top pick in the industrial sector given its low risk story. The risk level in the Honeywell International Inc. (NYSE:HON) story has fallen dramatically over the past several years with the cultural transformation at the company arguably on an unstoppable curve. Execution over the past several quarters (even years) has been best in class and speaks to a sharply improved and deeper management team.
Medical industry on a gallop in China
Life Sciences & Diagnostics is an integral segment at Danaher Corporation (NYSE:DHR), the producer of medical and industrial equipment and services. The segment accounts for medical equipment sales at the company.
At the EPG conference, the company claimed that the market for medical equipment has grown 7% to 10% in the developing economies, which is way higher than the growth in developed markets. In April and early May, the company continued to see strength in these regions and thinks they will be key contributors to Life Sciences & Diagnostics growth forecast in 2Q. As for China specifically, management is seeing double-digit growth so far in 2Q driven by strength in healthcare products.
Overall, Danaher Corporation (NYSE:DHR) is expected to be a relative out-performer from here if it can put money to work. Danaher Corporation (NYSE:DHR) recently upped its available M&A capacity over the next couple of years to ~$8 billion from a range of ~$5 billion to $6 billion, post the sale of the Tools JV. The Street is expecting several attractive bolt-on sized deals over the next two quarters. In addition, Danaher Corporation (NYSE:DHR) has a best-in-class portfolio, can make good companies better (through acquisitions) and has positioned its portfolio well both strategically and geographically.
An honest company
Emerson Electric Co. (NYSE:EMR) was given the title of the “most honest” company present at the conference as company officials clearly pointed out how the global macro fundamentals are still weak and hence there are still potential price headwinds. CEO Dave Farr gave an update on current business conditions by both geography and business segment.