Some Industrials Come Up the Hard Way

 | Apr 11, 2013 | 6:52 PM EDT  | Comments
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Stock quotes in this article:

utx

,

hon

,

mmm

It's not like people are talking about a new paradigm. It's not like we are hearing, "It's OK now to pay three times growth rates because rates are so low." You don't hear people say, "Look, China's going to come roaring back, which allows me to pay $110 for United Technologies (UTX)."

I think these stocks are tip-toeing higher, not bursting forth to breakout levels.

I spent some time on Honeywell (HON) and 3M (MMM) today. Sure, some of it had to do with what I am thinking about their growth rates. But most of it was the way a parent looks at a child who is going off to college: "How did that stock grow up so fast? How did it get so big?"

When I traced over Honeywell and 3M, what I found was a peculiar reluctance to go higher, literally the whole way. The path to these prices was littered with downgrades when it comes to 3M. There was always an analyst who said that the valuations were unreasonable, every step of the way.

Honeywell? I think there were more people worried about a missed quarter than worried about missing more upside. Every analyst meeting was filled with trepidation, and most earnings notes were about how Honeywell better not miss or it is Katy-bar-the-door. I found no notes of bravado that you would see, typically, at market tops. Instead, throughout the $40s, the $50s and the $60s, analysts were commenting about how rich the stock was compared with the expectations, not about how cheap it was. In truth, it was never cheap, except in hindsight.

Yep, it's been an odd run-up here, one that hasn't been embraced. One that analysts have looked askance at. One that they feel bewildered by, particularly if they got off the ship as so many did with 3M at much lower levels or simply lived in fear of a shortfall, as most of the recommending analysts on Honeywell surely did.

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