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Lennox International Inc. (LII), AAON, Inc. (AAON): Stocks for a Hot Summer Day

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This summer has been a scorcher in the western states. Las Vegas and Salt Lake City have set record temperatures in the past month. Even Death Valley, the site of the hottest temperature ever recorded on Earth, is getting close to its record high of 134 degrees. Rangers at Death Valley have even had to clean large amounts of partially-cooked eggs off of the sidewalk. Apparently, you can’t fry an egg on a rock, even if it is 129 degrees.

Lennox International Inc. (NYSE:LII)

These record temperatures haven’t caused too much trouble for those individuals lucky enough to have access to quality air conditioning systems, however. The following companies make money by keeping you cool.

The biggest of the bunch

With a market cap of $17.7 billion,

Ingersoll-Rand PLC (NYSE:IR)

is by far the largest of the companies we’ll look at today. This Irish company is in the business of creating safe and comfortable environments. Air conditioning systems for residential users are only a small piece of the company’s climate control business.

Looking at the company’s most recent annual report you will notice that they have $7.3 billion dollars worth of shareholder’s equity. That is a decent amount in relation to the company’s market cap.

If you look more closely at the company’s balance sheet, however, you will see that over $10 billion of the company’s assets are not tangible. Not to say this company’s intangibles don’t have value, but if they were subtracted from the equation  then the company’s equity would be negative by over $3 billion.

The company generated $665.1 million of net income in 2012, well above its 2010-2012 average of $550 million. It hasn’t posted negative earnings since 2008. In that year, net income was negative by approximately $2.6 billion dollars. This was a result of the company taking a write-down on the value of its intangible assets in the amount of $3.275 billion.

The high level on intangibles on this company’s balance sheet worries me. Additionally, this company has the lowest returns on equity, both during the trailing twelve months and over a five-year span, of any company I will be discussing.

Another mediocre option

Lennox International Inc. (NYSE:LII)

is another option for investors looking for a piece of the climate control sector. Sales of residential heating and cooling systems make up 46.6% of the company’s revenues. The remainder is almost evenly split between commercial heating and cooling, and refrigeration.

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