What is keeping General Electric (GE) afloat? Just when you think it has gone under for its last breath, it pops to the surface again gasping for air.
GE's life jacket appears to be its energy business. The company's gas turbine business is coming into its own as utilities switch to natural gas and toss plans for new coal or nuclear facilities. This move favors many companies, including Siemens (SI), Alstom and ABB (ABB).
The solar and wind industry may be paddling, but GE has propelled forward swimming toward the beach. GE has nearly overtaken Vestas for the top in wind turbines and is threatening Gamesa and First Solar (FSLR).
GE's energy revenues rose 18%. The energy equipment business was even stronger at 34% growth. Oil and gas equipment is thriving as demand increases for subsea equipment and services. In the subsea market GE is splashing Aker, Cameron (CAM) and FMC (FTI). National Oilwell Varco (NOV) may not feel GE's spray but the rig equipment company might want to look over its shoulder.
Energy is not the only life jacket GE is floating with. There has also been positive movement in its large transportation and aviation markets. While revenue fell slightly in the aviation segment with some defense program cancellations, GE is putting pressure on United Technologies (UTX) in its engine rollouts.
GE is a great example of how a big conglomerate with a focused management team can succeed. Trading at below $20, this is a great buying opportunity. Investors who prefer their returns in the form of dividends will be happy with GE's 3.5% dividend yield.
Comparing GE's numbers to companies like Siemens, Hitachi (HIT) and 3M (MMM), GE looks like an excellent performer. GE's price to earnings ratio of 15.83 and price to sales ratio of 1.39 are average but GE's growth potential is high. GE's margins are some of the highest with a 9.75% net profit, 41.77% gross and 13.64% operating margin.
GE is poised for growth in Australia. It is looking for $6 billion in contracts by the end of the decade as it taps into the country's burgeoning liquefied gas, iron ore and wind power supplier. Australia could very well account for 50% of GE's industrial revenue by 2020. Last year alone GE's equipment sales in Australia grew 67% to almost $3 billion. GE surpassed the sales of China and Latin America.
GE supplies Apache (APA), Fortescue Metals Group and Chevron (CVX). These companies alone are reason to believe GE is poised for significant growth in Australia. Another victory for GE in Australia was with its partner Safran SA in a joint jet engine venture. Safran won a $2 billion order to power 78 single-aisle Airbus SAS jets from Qantas Airways (QUBSF.PK).
GE is also eyeing the clean renewable energy field. It is partnering with the tiny company Arista Power. Arista designs and manufactures renewable energy generation management and distribution systems. It has a fairly strong foothold in the complex multibillion-dollar clean-energy storage market. Analysts feel that energy storage is the key to providing clean cheap energy.
The GE-Arista partnership will produce power-generation equipment. The systems will store electricity for commercial customers and release it when demand is at its peak. The technology can help reduce the cost of overall electricity. The system draws energy inputs from multiple sources. The battery storage reduces grid demand as it works to smooth power consumption during peak demand periods effectively lowering electricity costs to the customer.
Arista will utilize GE's Durathon Battery as the major component for the renewable energy power management system. The battery is the result of a $100 million investment in the next generation of battery technology.
Durathon is a nickel salt battery. Generally, the market for the battery is telecoms, utilities and uninterruptible power supply applications. The battery is 50% smaller and 25% lighter than traditional batteries. Even more important, it has a life span of up to 20 years. The batteries operate efficiently in any type of weather and require minimal maintenance.
GE has also enhanced its computing applications with the introduction of a new Reflective Memory (RFM) analyzer. Reflective Memory works in any application that uses serial networks to connect to computers. It is not subject to times delays when networks are overloaded. In many ways, it is the easiest method of achieving distributed processing. It also allows for real time data sharing. While it is a niche market in communication technologies, it is a growing market.
GE's healthcare business is showing signs of life as well. Orders are posting at a 6% increase and revenues are up 5%. GE has announced a joint financing agreement with Sweden's NXT2B, which will allow greater access to cancer and neurodegenerative disease diagnosis in developing countries, and emerging markets. At its core the equipment is cost effective, compact and has a 50% smaller footprint. The appliance market also seems to be ramping up and the lighting division is showing signs of blinking back on.
GE's first-quarter results show signs that the company is turning the tide and winning more than losing. Strong revenue growth is occurring in the emerging economies of China, Russia and Latin America. The GE Capital financial services division is rebounding as well. The division accounts for about 44 per cent of GE's earnings. In the past six months, GE has outperformed the US industrial sector and the S&P 500.
GE has been shoring itself up and it most likely will continue to move forward. There is plenty of room left in the oil and gas equipment or services field. Health is also an opportunity for GE to expand its business. If this trend continues, GE will continue to float toward some lucrative waters.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.