We pointed out Nortek (NTK) a couple of times in May as part of a story on derivative housing plays that are under-owned but of quality. Yesterday, Melrose Industries acquired Nortek at $86 per share. Important to note, and pointed out before, United Technologies (UTX) attempted to acquire Nortek last year for around the same price. Today, the stock is above the Melrose takeout price.
Is the market telling us that UTX is going to follow?
Nortek is a primarily domestic supplier of HVAC solutions and controls. This is a red hot area in the consolidated HVAC space. UTX's Carrier subsidiary could benefit from product additions in home automation for residential and commercial applications. And HVAC is a secularly growing market, mostly driven by technology and energy efficiency retrofits.
Melrose is a buyout company based on London. Their last transaction was selling meter and automation giant Elster, which was recently acquired by Honeywell (HON) at a hefty premium. Melrose is using the Elster proceeds to acquire Nortek, and they are telling us that automation and climate efficiency is a must-own area.
So where else can we play home automation and efficiency? Acuity Brands (AYI) is a play on lighting controls, but many are already on that bandwagon. Lennox International (LII) is another widely loved pure play climate company. Both are super high quality companies that are enjoying strong secular tailwinds.
Sensata Technologies (ST) and TE Connectivity (TEL) provide the connectivity technology and sensors to enable proper data monitoring and transfer in areas like automobiles and air conditioners. Itron (ITRI) is a large meter and advanced metering play for electric, gas and water utilities.
CalAmp Corp (CAMP) and Control4 Corporation (CTRL) are small-cap plays on asset efficiency and home automation themes. Smaller areas within Analog Devices (ADI) and Skyworks Solutions (SWKS) enable the communications for such controls -- but these niches are overshadowed by Action Alerts PLUS portfolio holding Apple (AAPL), mobile computing and telephony.
We are always on the lookout for ways to play good trends with under-the-radar companies. Nortek was one of them. Others will follow.
