(This article was sent first to members of the CNBC Investing Club with Jim Cramer. To get the real-time updates in your inbox, subscribe here.)
After you receive this alert, we will be buying 50 shares of Honeywell (HON) at roughly $200.54. Following the trade, the Charitable Trust will own 550 shares of Honeywell. This buy will increase HON's weight in the portfolio from about 2.42% to 2.65%.
Honeywell was a laggard in 2021 as some of its segments like Aerospace and Performance Materials and Technologies (oil & gas) had sluggish recoveries, weighing down the explosive growth in Safety and Productivity Solutions. But we think the time and price is right to get more optimistic about this industrial.
Honeywell's fundamentals should improve next year, and accelerating organic sales growth is on the table as the aerospace rebound picks up and the three other reporting segments contribute positive organic sales growth. And despite supply chain and logistic challenges, margins are expected to expand in all four segments next year.
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Trading at a discount:
From a valuation perspective, the stock is entering 2022 at a much less demanding spot than it did into 2021. At this time last year, one worry with owning Honeywell was that its valuation was expensive and too stretched, with shares trading at a 5% to 10% premium to its group. The conversation today could not be any more different.
Due to HON's underperformance this year — a rarity for an industrial of this quality, by the way — Honeywell now trades at a 5% to 15% discount to the same group. These were numbers pointed out in a research note published earlier this month by JPMorgan analyst Steve Tusa, who has Honeywell on his Analyst Focus List. As the numbers show, what once was an expensive stock has become cheap. We like that set-up for next year.
Thinking ahead, Honeywell is expected to host an Investor Day meeting in March. In the same research note, Tusa called this meeting a catalyst. In volatile times, we like stocks with catalysts because, if successful, the event will quickly improve investor sentiment and help the stock break free from the action in the broader market. From what to expect at the event, Tusa wrote he thinks management will provide "a more readily digestible growth algorithm" and discuss how they plan to use their balance sheet for "offense." We are looking forward to learning more about the opportunities in software and quantum computing.
Bottom line: Three reasons to buy
The bottom line here is that Honeywell may have had a rough time in 2021, but the setup for 2022 looks far more attractive. We see three reasons to add to our position today, even though it breaks basis: The fundamentals should be better in 2022, the valuation has shifted from expensive to cheap, and a potential catalyst event lies ahead in March.
The CNBC Investing Club is now the official home to my Charitable Trust. It's the place where you can see every move we make for the portfolio and get my market insight before anyone else. The Charitable Trust and my writings are no longer affiliated with Action Alerts Plus in any way.
As a subscriber to the CNBC Investing Club with Jim Cramer, you will receive a trade alert before Jim makes a trade. Jim waits 45 minutes after sending a trade alert before buying or selling a stock in his charitable trust's portfolio. If Jim has talked about a stock on CNBC TV, he waits 72 hours after issuing the trade alert before executing the trade. See here for the investing disclaimer.
(Jim Cramer's Charitable Trust is long HON.)