Johnson Controls is really three stocks in one. The first is a turnaround story: Its auto parts unit saw rebounding demand and 36% growth in operating earnings in the year that ended in September. The second is a reliable performer: Johnson makes and services heating, ventilation, and air conditioning systems. Increased construction and demand for energy efficiency in existing buildings lifted operating earnings by 12%. The third business is a high-tech growth play: a unit that produces a new breed of battery for "micro-hybrid" cars (available now in Europe, and in the U.S. in 2012), whose engines shut off and operate on battery power when idling, reducing fuel use. "The positioning in all three businesses is good," says Jerrold Senser of the Mainstay ICAP Select Equity fund, which owns 3.8 million Johnson shares. And the "very high-margin" battery business "is going to grow very rapidly."
Analysts predict 16% average annual growth over the next five years. But recession worries dragged shares from $42 in July to $29. If Johnson's P/E increases to a modest 13, it'll become a $40 stock.
Markets up. Markets down. Turmoil in Europe. You can't even trust bonds. What's an investor to do? Our man's solution: simple and boring.
