There’s a big difference between investing in a “cheap stock” and “cheap
for a reason” stock, and the latter is a sure ticket to years of
frustration. In the case of Johnson Controls (JCI),
there are certainly legitimate criticisms of the business – the margins
are really not that good, the scope of future margin improvement is
uncertain, and the business has some definite gaps (particularly in more
value-added areas). Even so, factoring in discounts and haircuts for
those flaws still leaves me with a valuation comfortably above today’s
share price. There is a new risk on the table now with Covid-19 and
whether the non-residential market will see a V-shaped, U-shaped,
L-shaped, extended L-shaped, or some sort of “jacked up W-shaped”
recovery, but long-term trends like building automation and energy
efficiency remain as strong as ever. With that, this is a name worth a
closer look.
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Even With Some Well-Known Issues, Johnson Controls Looks Too Cheap
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