Eoin Treacy's view In yesterday's Comment of the Day I reviewed a number of companies that are likely to benefit from demand for embedded processors over the medium-term. The appeal of these products is that the addition of computing power, sensors and communication technology greatly improves the cost of operating large pieces of machinery and opens up new avenues for development that can lead to even greater productivity gains. The logical corollary is that the companies who make the best use of these products will be among those most likely to raise productivity and so create value.

Servicing large pieces of machinery in the industrial, aeronautics and defence sectors is a costly exercise and the advent of imbedded processors has the potential to significantly impact the sector. This is at least one of the reasons these types of companies have been completing decade long ranges over the last year.

In the defence/aeronautics sector the pace of M&A activity has picked up. Goodrich was acquired by United Technologies, Aerosonic Corp was taken over by Transdigm while EDAC Technologies has been acquired by Greenbriar in a private equity deal.

Northrup Grumman, Raytheon, Lockheed Martin, Boeing, Heico, Genuine Parts, Precision Castparts and BE Aerospace are all somewhat overbought relative to the 200-day MA and susceptible to mean reversion.

United Technologies, Triumph Group, Transdigm Group and Teledyne Technologies are less overextended but some additional consolidation is likely before an additional advance can be sustained.