This Industrial Titan Offers Solid Value

For value investors, big and boring companies are just the ticket. General Electric (NYSE: GE  ) is one of the most venerable mega caps in the investing world; moreover, it's one of the world's largest companies by revenue. With several growth drivers in place, and a fairly low valuation, value investors should consider this unoriginal play.

Driving growth
GE is a hugely diversified producer of industrial goods, active in segments such as power and water, oil and gas, energy management, aviation, health care, and business solutions, among others. While growth slowed down during the crisis, it has since rebounded, although it's not yet back to pre-crisis levels.

The recovery of the airline industry is one of the factors boosting GE's growth. As airlines grow, and order more jets, GE naturally stands to benefit, since it's one of the world's largest suppliers of jet turbines.

Boeing (NYSE: BA  ) is one of its main customers in this segment, and the company's order book is swelling, with net orders of 786 airplanes as of September. At the same time, GE's aviation unit posted a healthy 6% sales increase for the first half of the year, and is now the company's No. 1 branch by orders. As airlines continue their recovery, this segment can be expected to continue its strong performance.

The company's power and water division is no slouch, either. It's currently the largest by sales, as well as the fastest-growing, with a 17% increase in revenue for the second quarter. GE recently scored contracts worth $2.7 billion with the Algerian SPE, an affiliate of Algeria's national electricity and gas company. Under the terms of the deal, GE will deliver heavy-duty gas-turbine technology, which should be good for around nine gigawatts of electricity.

Downsizing GE Capital
Much of GE's growth over the last few years has been supplied by GE Capital, the company's lending arm. A recent Barron's article cited a prevalent view of the company as a "bank in disguise". For full-year 2012, GE Capital's contribution to revenue was at 31%, while it's full-year profit contribution was around 32%.

Compare this to GE's main competitor, Siemens (NASDAQOTH: SIEGY  ) . Of a third-quarter total sector profit of $1.7 billion, the equity investments and financial services sector contributed $194 million, or around 11%. The company has also seen its order book surge this year, with third-quarter orders up 19% year over year to $28.3 billion. In terms of profit growth, health care was its the best-performing sector, with a 26% increase.

In order to become a more competitive industrial company, GE is working on downsizing its capital division. The goal is to get the contribution of the sector down to 30% of profits by 2015 , as it has reduced assets by selling property and bank stakes. Analysts expect the company may even spin off its lending arm, a move which would probably be cheered by investors as it would allow GE to focus more on its industrial activities.

Valuations and metrics
GE is an inexpensive stock at the moment, with a forward P/E of 13.27 times expected earnings. Siemens isn't far apart at 13.24, but GE has a considerably lower price-to-book ratio of 2.0, versus Siemens' 2.89. GE also has a significantly higher operating margin, probably boosted by its financial services segment, while Siemens seems to have the more comfortable cash position. Both solid choices in terms of valuation, GE may have greater opportunities going forward.

The bottom line
Not the sexiest of stocks, GE is a very large and very stable name. Yet, it still appears able to deliver strong growth. Aviation is doing well, as is power and water. With orders streaming in this year, the company looks like it could have a few more EPS beats in store. Moreover, it is trading at a very reasonable valuation and, as such, may be considered for incorporation in a value portfolio.

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