Back to the Basics
General Electric (GE) is one of those companies that is so big it's hard for investors to grasp everything it has its tentacles in. You've got light bulbs, nuclear reactors, the kitchen sink, garbage disposals, and even wind turbines that the company produces and distributes all over the world. It is the 11th most admired company in the world and is ranked eighth on Fortune 500 companies. What invites investors to embrace the company and put part of their portfolio in it are two commonly recognized facts: the company has been around for 100+ years and it pays a respectable 3.4% dividend. This attracts investors who are looking at the long term income generating picture. The best thing we can do is take a look at the company and educate you on certain aspects of what it has been up to that will keep it profitable for years to come.
The company did have a scare even though it started out in the original Dow in 1896. Just recently, in 2008 when the financial arm of the company GE Capital brought in nearly 50% of the company's prospects, it imploded. To keep afloat the company had to slash its dividend and ask Warren Buffett to step in to help with some emergency cash. The slumbering giant suddenly awoke and realized that it was not in a good place. Focusing on a portfolio with traditional core industries it set about looking for balance again by shrinking its financial arm and selling NBC Universal as just two examples.
With a huge R&D budget the company plans to stay on the cutting edge of innovation which includes developing new engines and gas turbines on a regular basis. It has plans to invest in what it calls "industrial Internet" with the intent to capture big data to make machines more efficient. The company is getting back to the basics.
GE "Power Industry" in Canada & Around the World
The abundance of natural gas and an inexpensive price are having a major influence on the whole "power" industry. Canada appears to be a favorite spot for unconventional fuel now. For GE, the depressed gas prices are seen as a long-term, possibly thirty-year, cycle that the company can take investment advantage of. Presently the company is focusing on gas turbines and compressors for the biggest space in product and technological advancement.
Canada fits into this equation because it is a center of unconventional fuel and resources and this is what the macro trend in the world is leading to. Canada is one of GE's fastest growing regions where they apply a lot of energy to understanding how to invest and allocate its resources. Canada is just the center of power business right now. The technological solutions that are being searched for, dealing with things like water technology treatment (as one example), are first researched and implemented in Canada before anywhere else.
With gas turbines GE is researching how to allow them to make quick starts but still stay within emissions parameters, this is going take flexibility but at the same time it is also looking to increase base load efficiency. With the different types of gas, it is important for the turbines to be able to handle different dual or tri-fuel combinations. For this reason researching the combustion cycle for this flexibility is taking place. This is just an example of how GE is researching and adapting things in Canada.
The whole outlook on the power industry has a divestiture of renewables, gas, coal, and nuclear energy. Wind and solar are the most commonly known renewables but their competitiveness is still far off when you think in terms of kilowatts per hour generated by cost. Wind is far ahead of solar but GE is investing in both trying to improve and advance their technologies.
As an example of advancement, GE just introduce a 1.6 MW turbine with a 100 m rotor that is 20% more efficient than its nearest competition. The company is not stopping there because it plans to introduce a 2.5 MW turbine with a 120 m rotor that also contains a battery so that customers can gently flow through times of unsustainable winds. This one could be a game changer!
Being a global company, GE has the ability to invest in the "power cycle" where investments tend to be the best at any given time. In the renewable industry, you have forms of government incentives in some areas and in some areas you don't. It makes sense that companies like GE will invest most of their capital where government incentives tend to be popular at the moment and then they will pull back when these incentives dry up.