Speaking after Chinese authorities approved United Technologies’ purchase of aircraft parts manufacturer Rockwell Collins — the final hurdle in a 14-month-long process — Cramer said that prospective buyers should watch out for the external risks to the industrial’s business.
“You can’t own United Technologies in a vacuum,” he said on “Mad Money.” “At the end of the day, the stock’s still hostage to President Trump’s negotiations … with China and the Federal Reserve’s interest rate decisions.”
United Technologies, a massive company that makes Otis elevators, climate-control and security systems and aerospace components, is widely viewed as cyclical, or tied to the success of the broader economy. Its $23 billion acquisition of Rockwell Collins was a move to bolster its contributions to the average new plane, giving it bargaining power akin to that of Boeing or Airbus.
The company also announced on Monday its intention to break its key segments into three parts and the completion of its Rockwell Collins deal. Cramer said the split “could be a major boon for you, the shareholder.”
But tariffs are hitting United Technologies’ business on both sides, Cramer said. The Trump administration’s duties on steel and aluminum are raising costs for key raw materials, while retaliatory tariffs from China, the company’s third-largest end market and top source of growth, are weighing on its overseas sales.
The Federal Reserve’s plan for raising interest rates — one hike in December followed by three more in 2019 — has only further weighed on United Technologies’ prospects because of its cyclical nature, Cramer warned.
“Those concerns have not gone away, but with … Rockwell Collins, this becomes a very different, much more positive story,” he said. “All of a sudden, United Technologies can get moving with its breakup and, by all accounts, things could move very quickly from here.”
Cramer added that the value potential of all three business — especially aerospace, now that Rockwell Collins is in the fold — make United Technologies’ stock worth considering.
“I think United Technologies’ stock has come down so much that it’s worth starting to invest here, because the share price reflects a lot of negativity and not much chance of anything going right, and, of course, you’ve got a really positive catalyst,” he said. “That said, there are some real headwinds here and you need to take them into consideration before you pull the trigger, and I certainly would urge you not to buy all at one price.”
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