One of the quirks of the COVID-19 affected stock market is that the reaction of investors to the fortunes of particular companies has not always been as intuitive as pre-pandemic days. Stocks which have boosted earnings since March have seen the bulls return, but not all of those negatively affected have suffered. Part of the reason that Honeywell share price is over 60% above their March lows is that the conglomerate is well diversified across its businesses. This means that the downturn in aerospace has been offset by growth in defence, warehouse automation and PPE.
HON share price: climbing a wall of worry
One of the characteristics of the stock market is that the strongest rallies can be seen at companies where sentiment has been hit in a negative way, rather than where there is simply just good news. Honeywell is a key example of a stock climbing a wall of worry, as the Honeywell share price was marked down by 80% in March, as its exposure to the aerospace sector became an excuse for investors to head for the exit.
However, this knee-jerk response proved to be incorrect for a couple of reasons. Firstly, the company is a conglomerate and diversified across different businesses and markets. The second is that not only is the drag from aerospace only part of Honeywell, in PPE and warehouse automation it occupies two areas which have boomed since the pandemic struck at the beginning of 2020.
Q3 results beat Honeywell share price forecasts
It is of course one thing to assume that a company can ride out a storm, but with COVID-19, we have seen the crisis last longer and go deeper economically than most have expected. There is also the risk of a rolling crisis, something we are witnessing as we approach the winter.
Honeywell has been brave enough to reinstate Q4 and full year guidance, something which may be ambitious, but judging by the detail on the Q3 update, this may be fair. The evidence for this comes from the way that while aerospace may have declined 25%, the overall sales decline for Honeywell shares has been only 14%. Indeed, if the double digit sales rise for PPE continues, it could very well be the case that the HON share price heads to retest pre-pandemic highs seen at the beginning of 2020 near $180.
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HON share price daily chart
While buy the dip is a well worn phrase in the stock market, those who are familiar with the Honeywell share price, and the spread of the company’s businesses would have realised in March that to mark the stock down 80% when the aerospace part of the business does not have such as weighting in revenues was unfair. This has provided a bottom fishing opportunity for the year to date with a rebound from the $101 to close to 60% higher than this level in the wake of the latest Q3 results.
From a technical perspective if Honeywell shares can remain above the all important 200 day moving average support level at $154, we could anticipate a retest of the 52 week highs through $180.
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