Electrical Equipment & Multi-Industry
There is no doubt that most of us are happy to see 2020 in the rearview mirror. While the economic outlook and the pace of eventual recovery is still uncertain, there may be no greater stimulus than successful vaccines and therapeutics that allow life to return to some semblance of normal. This will be further supported by monetary and fiscal stimulus. Business activity across the board should be higher in 2021, although a rocky Q1 is still possible given a resurgent COVID-19 that’s running ahead of vaccination programs. Concerns of a new strain are further fueling the angst. Our top picks are JCI, ETN and VRT which hit one or more of our themes around energy efficiency, electrification and selfhelp. JCI and VRT are also relatively inexpensive on an absolute basis at a time that relative constructs are increasingly the justification for any target. JCI is leveraged to smart buildings and energy efficiency drivers and has internal operating levers to pull. It also has arguably not gotten the ESG credit with investors that it deserves. MSCI’s ESG rating for JCI is AAA, the highest rating. JCI is classified as building products and only scores 9% of that sector is scored as AAA. VRT is essentially a pure play on data centers and telecom infrastructure, with substantial self-help opportunities in its margins. We see room for the shares to re-rate as it builds a longer track record with investors. ETN has already enjoyed a re-rate as the portfolio evolves, but we like the combination of cyclical leverage that will come in 2021 in its vehicular and short-cycle electrical businesses, coupled with later cycle drivers in non-resi and aerospace. ETN is well positioned to benefit from trends in electrification across the grid, buildings and vehicles and the likely Q1 closing of the sale of hydraulics for $3.3 billion provides additional balance sheet optionality.
- Johnson Controls, Inc. (JCI)
- Eaton Corp (ETN)
- Vertiv Holdings Co. (VRT)