The General Electric Company (GE) offers products and services ranging from aircraft engines, power generation, water processing technology to medical imaging, business and consumer financing, media content and industrial products. GE conducts operations globally operating in over 100 world markets. It is one of the largest companies and largest exporters in the United States.
General Electric experienced considerable hardship during the financial and capital markets meltdowns in 2008 and 2009. Its lending division presented the bulk of these difficulties and management made deep cuts to that division as well as selling off non-core and non-performing assets such as its security divisions. The restructured financial services division is now more competitive and heavily regulated within that space.
By making more cash available, management has focused on being a leader in innovation, expending more on research and development each year since 2008 despite the economy. The R&D expenditures will continue to feed a strong product pipeline for the future.
It has a focused and experienced management team with strong emphasis on technology and product development. General Electric innovates on a large scale. More than half the airplanes in the world have GE engines, serving military and commercial aviation customers. These engines are more fuel efficient than the ones it has replaced or those currently in operation. GE’s ability to execute large-scale innovation is based on GE’s technical depth and scale.
A little less than 60% of its sales come from outside the United States. GE initiated ventures in China and Russia to accelerate growth in energy, aviation, healthcare and transportation. It supplies important infrastructure needs in those countries. GE’s corporate culture and ability to implement on innovation are great advantages to globalization.
Growth through innovation is as important as staying fast and productive. Corporate leadership has taken great pains to maintain a balance that is beneficial for the fiscal health of the company. GE advertises itself as more than the sum of its parts. It is as an innovative infrastructure and financial services company with the scale and to solve tough global problems for society while being a competitive force for change. These are lofty ambitions and the company has demonstrated its ability to change and adapt in economic turmoil.
General Electric Company’s common stock trades around $16.50, year high is $21.65, year low is $14.02. The return on assets is 1.72%. Return on equity is 11.80%. Its earnings per share are 1.31. It has total cash of $91.37 billion and total debt of $466.13 billion. GE's dividend yield is 3.50%, five year average is 3.90%. These are impressive statistics given the stock price was around $5.00 in 2009 when the company slashed its dividend.
Textron Inc. (TXT) trades around $18.00 the year high is $28.87, year low is $14.66. Its earnings per share is 1.02 and has a dividend yield of 0.40%. The five year average dividend yield 2.10%. It has total cash of $1.52 billion and total debt of $5.44 billion. The return on assets is 2.46% and return on equity is 10.23%. TXT has global interests in aircraft, defence, industrial programs and finance, primarily asset lending in aviation, resort finance as well as structured capital.
3m Co. (MMM) trades around $80.00, year high of $98.19, year low of 68.83. The earnings per share are 5.88, return on assets is 12.29% and return on equity is 26.03%. It has total cash of $4.86 billion, debt of $35.37 million. Its dividend yield is 2.70% with the five year average being 2.60%. MMM conducts operations in electronics, telecommunications, industrial, consumer and office, health care, safety, and other markets.
United Technologies Corporation (UTX) trades around $74. The year high is $91.83, year low is $66.87. Earnings per share is 5.33, dividend yield is 2.50% and the five year is 2.10%. The return on assets is 8.89%, return on equity is 22.39%. Total cash is $5.97 billion, total debt is $11.36 billion. The company’s products include aircraft engines, elevators and escalators, heating and air conditioning equipment, helicopters, aerospace systems, fuel cell systems, and fire and safety equipment.
Each of these companies are trading within their mid price range and offer similar five-year dividend yields. This may be as a result of them being held by institutional investors who follow the same research and trading programs of their peers. As for which one is most attractive to investors in this environment, prudent interests would err on the side of the one with the least amount of debt and the highest return on equity.
Relative to its peers, GE’s reach is far and wide. While peers may participate in the same market space, GE dominates because of its ability to innovate and implement new and cost effective infrastructure and energy methodologies. Its consumer products remain at the forefront of exports internationally. Clean energy initiatives are a priority in their innovation investments, having invested in 20 energy efficient start up companies.
Threats to GE’s value are interest rate increases, which will defer capital expenditures for large ticket items such as jet engines and large appliances. Its debt situation is worrying. GE’s earnings from healthcare partnerships could be negatively impacted by reduction of government spending. Competition in streaming technology represents a risk to the entertainment division and slowdown in emerging markets such as China and India could adversely affect earnings growth. Because of its international presence, the company is vulnerable to geopolitical risk, which impacts global markets. Its long term growth is vulnerable to short term volatility.
While there are many positive events that make GE’s stock attractive now, it is almost as if the sentiment to be in the stock is too little too late. GE has fought back a long way from the economic crises, having cut its dividend in 2009 from the first time since its inception in 1892. Its progress has been stellar but it may find that it is up against the European financial crises, the slowing in growth in its largest emerging market partners such as India and China and interest rate increases in those markets and domestically. Caution is in order for the next two years before a stable path for growth can be established.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
