General Electric (NYSE:GE) is the oldest Dow component, having been a part of the index since 1907. UnitedHealth Group (NYSE:UNH) is the newest component, added to the Dow just last year. In this article, I will outline why both of these stocks should be added to your portfolio. In determining why I find these stocks attractive, I will be focusing on each company's financial performance, current valuation, past and recent trading activity, earnings and future outlook.
What does GE do? It's possible that describing what GE doesn't do could be an easier list to write. GE is the ultimate conglomerate company, functioning throughout several industry sectors. To keep things brief, I will give a quick description of its main business segments.
- Power and Water - produces turbines, generators, and combined cycle systems, solar technology and water treatment services
- Oil and Gas - produces drilling and production systems, compressors, reactors and other related equipment
- Energy - produces electrical distribution and control equipment, power panels, circuit breakers and other related technologies
- Aviation - produces jet engines, aerospace systems, and other related equipment for both military and commercial aircraft
- Healthcare - produces products related to medical imaging, diagnostics, patient monitoring systems, etc.
- Transportation - produces freight and passenger locomotives, engines, railway signal and communication systems, underground mining equipment, energy storage systems and more
- Finance - offers commercial loans and leases, fleet management, credit cards, personal loans, etc.
|Profit Margin (Trailing Twelve Months)||9.81%|
|Return on Assets (Trailing Twelve Months)||1.53%|
|Return on Equity (Trailing Twelve Months)||11.86%|
|Revenue (Trailing Twelve Months)||144.34B|
|Revenue per Share (Trailing Twelve Months)||13.89|
|Quarterly Revenue Growth (Trailing Twelve Months)||-3.50%|
|Quarterly Earnings Growth (Trailing Twelve Months)||0.90%|
|Gross Profit (Trailing Twelve Months)||70.19B|
GE had mixed Q2 results. The company had a decline in overall revenue, mainly because of a large drop in its power and water segment, as nearly all other units increased or held steady compared with last year.
The company maintained its guidance for 2013, expecting a rise of zero to 5 percent in revenue for the year and a decrease of $500 million in costs.
Stock Performance and Valuation
General Electric is currently trading at $24.34 per share. This is just $0.61 shy of its 52-week high and $4.47 higher than its 52-week low. For the year, GE is up 15.96%. Compared with the rest of the Dow components, GE is nearly right in the middle having traded better than 12 of the other 29 components.
GE is trading above both its 200-day moving average of $23.25 and its 50-day moving average of $23.86. It's also trading at a price-to-earnings value of 15.8x and a price-to-book value of 2.0x with earnings per share of $1.54.
GE has met or exceeded earnings estimates in each of its last 10 quarterly reports. The company has a negative five-year earnings growth history, but a growth rate of 5.56% in the past year. Analysts estimate a 9-10% increase in earnings from GE next year.
GE has been paying quarterly dividends for over 100 years. The company's dividend was slashed significantly during the last financial crisis, but has been rising steadily since 2010.
|Ex Dividend Date||Amount|
At a current yield over 3% and a payout ratio right at 50%, the dividend appears safe with another increase in the next quarter or two very likely.
The future looks bright for General Electric. It announced earlier that it has a record number of back orders and has continued to slim down the finance unit, GE Capital. If GE can continue to improve its operating margins while continuing to increase its industrial growth, there should be nothing holding this company back.
GE maintains healthy cash balances and has shown a renewed commitment to restoring its dividend policy. So even if you are strictly a dividend growth investor, I feel that GE is currently a solid buy and should be added to one's portfolio. The company has three years of dividend growth under its belt, and I see no reason for this trend to stop any time soon.
UnitedHealth Group offers healthcare coverage and services for improved health and well-being. The company operates through several segments that provide a variety of services such as medical information management, health benefit administration, care coordination, claims processing software, etc.
|Profit Margin (Trailing Twelve Months)||4.65%|
|Return on Assets (Trailing Twelve Months)||7.53%|
|Return on Equity (Trailing Twelve Months)||17.80%|
|Revenue (Trailing Twelve Months)||116.82B|
|Revenue per Share (Trailing Twelve Months)||115.26|
|Quarterly Revenue Growth (Trailing Twelve Months)||11.50%|
|Quarterly Earnings Growth (Trailing Twelve Months)||7.40%|
|Gross Profit (Trailing Twelve Months)||30.39B|
UNH has performed extremely well, seeing revenue and profit increases pretty much across the company. With growth in both its benefits and its health services businesses, UnitedHealth Group appears poised to see a long run of revenue and profit increases in the coming years.
Stock Performance and Valuation
UNH is currently trading at $72.92. This is just $0.74 shy of its 52-week high and $21.83 higher than its 52-week low. For 2013, UnitedHealth Group has been the third-highest performing Dow stock (up 34.44% on the year).
UNH is trading above both its 200-day moving average of $61.33 and its 50-day moving average of $68.58. UNH is trading at a price-to-earnings value of 13.9x and a price-to-book value of 2.4x with earnings per share of $5.26.
The last time UNH missed an earnings estimate was back in 2008. Since then, it has mostly reported earnings greater than the estimates. UNH reported earnings per share of $1.40 last quarter, a $0.13 increase over the $1.27 estimate.
UNH has a 1-year earnings growth rate of 1.56% and a 5-year earnings growth rate of 16.30%. I have seen nothing to indicate that this trend in increased earnings will not continue for UnitedHealth Group.
UNH has been paying dividends since 2001. Up until 2010, UnitedHealth Group paid a consistent yearly dividend of $0.03 per share. Since then, UNH has paid a steadily increasing quarterly dividend.
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The likelihood of another increase in UNH's dividend next year is high. UNH has a low yield, currently around 1.50%, but it has been growing at a very high rate (more than doubling within the past three years). With a payout ratio under 20%, I expect this trend to continue.
In the review of GE, I mentioned that the company's future looked bright. If GE's future looks bright, I would have to say UNH's future is blazing. There is really no negative that I can think of that would make me question UNH as a buy. The only way I see this stock going down in price significantly (and for a significant period of time) is through a widespread market loss of value. Because of UNH's track record of increased revenue, profit, and shareholder value, I consider UNH to be a solid buy.
In my opinion, General Electric and UnitedHealth Group are both in an upswing. The two companies both operate their businesses through several divisions and both have seen increased revenues and profits throughout several of those divisions. As GE continues to shrink its GE Capital division and concentrate more on its industrial strengths, it will continue to thrive. UNH has seen a steady stream of revenue growth that doesn't look to be slowing down. The two companies both pay quarterly dividends that have seen steady increases. GE has the higher yield, but UNH has seen the higher growth in the past couple of years. I feel that adding either or both of these stocks to your portfolio would be wise.