One big story of 2011 has been how Americans are now seeing Germany as a model. The German economy is continuing to grow, despite high rates of pay and worker benefits, while America's growth post-2009 is fueled by worker givebacks, which must in the end bring long-term pain to suppliers in the form of a smaller home market.
Since Jeff Immelt took the helm of GE, he has been refashioning it into an industrial company, reducing its reliance on GE Finance, selling half of NBC Universal, and doubling down in markets like energy and health care.
What's his model for the new GE? It's Siemens (SI). Siemens has assets in healthcare, energy, heavy industry, and finance, as does GE. Siemens has gotten into solar thermal energy by buying Soleil in 2009. GE has just put $40 million into eSolar and gotten into the solar power business itself.
The bottom line, however, is the bottom line, and over the last year GE's performance has increasingly mirrored that of Siemens. That wasn't the case during the previous five years, during which Siemens dramatically outperformed GE, rising by nearly a third (even with a recent downdraft) while GE lost half its equity value.
There are big advantages to a Siemens-like strategy.
There is less competition in niches that require rich stores of capital.
There is ample growth in both healthcare and energy.
There is great PR to be had from things like thermal solar plants.
Immelt has proven to be conservative in his solar investments, seeking to combine solar thermal with natural gas to assure year-round power delivery, and by only buying into companies rather than buying them outright, as Siemens has done.
As solar power matures in the next few years – and there are huge breakthroughs coming in terms of solar energy storage, flat panels, print technology and efficiency – both GE and Siemens are now positioned to take advantage. For both companies, the benefits of this strategy will be seen in the relatively long term -- the next five or 10 years at minimum. This is a play for patient investors only, who like dividends. Siemens currently has a yield of 3.69%, a fat annual dividend of $3.50 per share. GE only began expanding its dividend payout a year ago, although before the market crash it was paying out more than $1/share per year. Becoming more like Siemens, in other words, sounds pretty good to shareholders interested in long-term value.
Rather than having renewable energy dominated by new players, it's very possible it will be dominated by very old players, not from the oil patch but from the electrical field. Siemens was founded in 1847 as a telegraph company. GE dates its history to the work of Thomas Edison in the 1880s.
Disclosure: I am long GE.