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Investing: United Technologies has many moving parts

To fully understand United Technologies' diversified array of businesses, investors must do some homework. Also: A snapshot of the Appleseed mutual fund.

May 22, 2011|By Andrew Leckey

Question: What's your opinion of United Technologies Corp.?

Answer: As with any conglomerate, an investor must do some homework to fully understand United Technologies' diversified array of businesses.

The company has a number of well-known brands, including Carrier air conditioners, which are experiencing strong worldwide sales. Its Otis elevator unit — as well as Carrier — should benefit from a high level of construction in China.

The firm's Pratt & Whitney jet engine business is a solid performer boasting new models with improved fuel economy and reduced noise, and its Sikorsky unit is a major manufacturer of helicopters.

But the company is dependent on government funding for military contracts, and the construction and aerospace industries are cyclical. Its significant overseas presence also causes its results to fluctuate with exchange rates. This year, that's been a positive, as a strengthening euro has increased the dollar value of sales made across the Atlantic.

In 2010, United Technologies earned $4.4 billion, up 14% from 2009. Its revenue rose 2.7% to $54.3 billion. In the first quarter of 2011, net income climbed 17% as revenue jumped 11% from a year earlier.

United Technologies shares are up 11% this year after climbing 13% last year and 30% in 2009.

Last month, the firm increased its quarterly dividend to 48 cents a share from 42.5 cents, expressing confidence that its businesses can "provide sustainable sales and earnings growth over the long term."

Analyst ratings on the stock consist of seven "strong buy" ratings, nine "buys" and five "holds," according to Thomson Reuters.

'Socially responsible' priorities vary

Question: What do you think of a mutual fund called Appleseed? I like its socially responsible philosophy.

Answer: Funds that describe themselves as socially responsible vary greatly in what they consider important.

Appleseed seeks to invest in "sustainable, undervalued companies." That means firms of all sizes that "balance profits with an awareness of their impact on the environment and society" and are led by executives who aim to create "long-term, enduring value." Four of the fund's five managers must approve any stock before it is added to the portfolio.

Not every company measures up, and the fund typically has just 15 to 20 stocks. At the end of March it had 18% of its assets in cash and 5.2% in an exchange-traded fund that invests only in gold bullion.

That large cash component helps when the stock market is falling but hurts when it's rising. Appleseed earned a total return of 11% in the last 12 months. That ranked it near the bottom of the mid-cap "value" category, the sector to which Morningstar assigned Appleseed based on its portfolio holdings.

But the fund's three-year annualized return of 12% is at the top of the category.

Appleseed requires a $2,500 minimum initial investment but imposes no sales charge on purchases of fund shares. At last report, its annual management expenses equaled 1.24% of the fund's assets.

Andrew Leckey answers questions only through the column. Write to him at yourmoney@tribune.com.

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