General Electric (NYSE: GE ) is trading at five-year highs after reporting its earnings on Oct. 18. The company's fundamental performance has many analysts expecting brighter days for the diversified giant, but is GE really a top investment choice for those seeking diversity?
Taking the bad with the good
If you look through the market, there's likely no company more diversified than General Electric. It has a presence in everything, with industrial, financial, power, transportation, and even health-care divisions. Therefore, some investors often think that an investment in GE is like index investing the Dow Jones. However, this simply isn't the case.
For example, there's no question that you get a very profitable and large GE Capital business, which accounted for $10.6 billion of the company's $35.7 billion in revenue during its last quarter . GE also has lucrative aerospace, oil & gas, and industrial segments. Each saw strong year-over-year growth.
However, your investment in GE also includes power & water, energy management, and health care, all of which saw declining revenue or no growth. These divisions helped drag down the overall company to a year-over-year revenue decline of 1% in the most recent quarter.
Remove the bad, and improve the good
GE bulls like to point to the $13.9 billion that the company has returned to shareholders this year; its 19% overall order growth; and its steady efforts to shrink the debt that has plagued it for years. However, these positives still don't negate the bad that comes with GE.
What if you want to capitalize on all of GE's strengths, but none of its weaknesses? Thankfully, GE's transparent quarterly earning reports let you pick apart the areas of the market in which the company's having more or less success.
For example, aviation performed well; GE's aviation segment grew 12% to $5.3 billion, booking 18% profit growth. Moreover, the company now has a $114 billion backlog in aviation, though this compares only marginally to Boeing (NYSE: BA ) , with its whopping $415 billion backlog.
While aviation is GE's strongest space, it's Boeing's only space. An investment in Boeing, which also enjoys double-digit top-line growth, allows you to capitalize on this one strong segment. At 23.5 times sales, Boeing trades at a slightly richer valuation GE. But wouldn't you rather pay a slight premium to invest directly in the segment providing GE with its strongest performance?
Next, let's look at GE's oil & gas segment, which grew its revenue by 18% to $4.3 billion. However, these numbers are a bit skewed by the close of GE's rather large acquisition of Lufkin. This $3.3 billion deal gave GE a company that grew 37% in 2012, with revenue of $1.3 billion . The rest of GE's oil & gas division did grow on its own, but the Lufkin deal inflates that overall growth in the company's quarterly report.
If you want to invest in the massive domestic production boom that's revitalizing U.S. oil, Schlumberger (NYSE: SLB ) might make a very attractive alternative to GE. Schlumberger is a massive $122 billion company in the same space as GE's oil and gas division. Its annual revenue of nearly $45 billion grew 9.4% in its last quarter alone . Despite Shlumberger growing significantly faster than GE, it can surprisingly be purchased for the same P/E multiple as GE, making it that much more attractive.
GE's making fundamental progress with its balance sheet, and it's a good investment in the overall market. But you can invest in the company's strengths -- and get better performance in those areas -- while avoiding the weaknesses that hinder GE's overall returns. Clearly, there are far better ways to invest in GE's lines of business.
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