Like most conglomerates, United Technologies Corporation (UTC), (NYSE:UTX) won’t be found in any of the Clean Energy indices, but its growing portfolio of clean energy businesses makes it fit well into a diversified portfolio with a clean energy tilt. A conservative capital structure and solid earnings and cash flow, and a decades long history of constantly increasing dividends make this a company that I’m comfortable holding for the long term.
In terms of sustainability, the company has been recognized by Dow Jones as in the top 10% of the world’s most sustainable companies. Long before it became fashionable for companies to greenwash by reducing their environmental impacts, UTC pledged in 1996 to reduce their power and water usage by 25%, and they have met these goals while growing their business. Their long track record of reducing their energy usage gives them a significant head start against rivals who have only recently jumped on the climate change bandwagon.
Of the company’s eight major business units, UTC Power and Carrier are both crucial to how we generate electricity and how we use it. Carrier has a history of pushing for more stringent energy efficiency and environmental standards for air conditioning, a strategy which helps their business strategy since UTC’s scale and research allow them to remain on the technological forefront.
UTC Power has a large portfolio of products which will help modernize our energy infrastructure. They supply microturbines and Solid Oxide fuel cells, as well as integrated combined cooling, heating, and power products, which I feel are likely to become much more popular as more companies seek ways to lessen their environmental impact and energy bills at the same time.
With their PureCycle binary cycle turbine, UTC introduced the benefits of volume production to geothermal power by making slight modifications to an existing line of Carrier’s industrial chillers which allow them to operate in reverse. Raser Technologies (RZ) plans to use this technology in their aggressive plans to develop a large number of lower temperature geothermal resources throughout the Southwest. According to a personal conversation I had with a Raser employee. UTC’s ability to deliver the turbines quickly, and willingness to guarantee performance was key to Raser’s selection of that technology in preference to rival products.
One other technology likely to be of great interest to clean energy investors is their molten salt storage technology, which provides a rare opportunity for a US-based public investor to participate in what I consider to be one of the most promising solar technologies: Concentrating Solar Thermal Power (CSP). The thermal storage provided by molten salt gives CSP the potential to provide power on a dispatchable basis, allowing it to compete directly with expensive electricity from natural gas turbines.
Other divisions of UTC, such as the Sikorsky helicopter division, are major military suppliers, so traditional socially conscious investors may wish to avoid UTC. On the other hand, the short supply of helicopters needed in modern warfare (as well a a large backlog in their Otis elevator division) have propelled strong earnings growth, while even relatively efficient air conditioners could not prevent Carrier from being hurt by the housing slowdown. Such are the benefits of diversification.
At roughly $74, and a 17.3 P/E, UTX is not currently cheap. I currently have only some out-of the money short puts on the company, but it’s one that I intend to continue writing puts on until the stock falls and I’m assigned shares.
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DISCLOSURE: Tom Konrad and/or his clients have long positions in UTX, RZ.
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