How General Electric Company Stacks Up Against the Competition

GE's a behemoth of a company, but is it the best industrial stock for your money?

Mar 13, 2014 at 6:20PM

The financial crisis rattled General Electric in 2009, leading critics to say the company had lost its way. A common refrain emerged that GE was worth less than the sum of its parts. In other words, shareholders would be better off if the conglomerate was sliced up and sold at auction.

GE's management team saw it differently: the company needed to be pruned, not chopped into pieces. This "renewal" was described in its 2009 letter to shareholders:

For the last decade, we have run the Company with, at times, more than half our earnings coming from financial services. As we grew, financial services became too big. ... GE must be an industrial company first. ... We have taken strong actions to simplify and focus GE around our core competitive advantages.

Ge Wind Turbine

GE wind turbine. Source: General Electric.

The shareholder letter also described GE's intent to "spread innovations across the portfolio" and reshape itself into a true industrial conglomerate. The idea of simplification has become a core value at GE as the industrial businesses take center stage while its banking segment, GE Capital, prepares to spinoff a portion of its North American retail finance operation.

Even with this simplification effort, however, investors often find it difficult to assess and value GE's underlying businesses. I recently provided an in-depth overview of all eight segments, but a holistic approach would evaluate how each of these businesses fits together to provide an overall competitive advantage. That's no easy undertaking.

One way to look at GE's performance, however, is to compare the industrial giant to its peers, notably other industrial conglomerates. With this goal in mind, I selected four companies to stack up against General Electric: 3M, Siemens, Honeywell, and United Technologies. The chart below reveals their relative performance with GE lagging behind in total returns over the past 1-year period:

MMM 1 Year Total Returns Chart

MMM One-Year Total Returns data by YCharts.

In many ways, these companies are quite similar to GE. Their operations span a variety of industries. They tend to expand the top line through a mix of organic growth and acquisitions, the latter made possible by their size and available cash. Furthermore, their revenue base is global, not reliant on one particular country or region.

Of course, there are some differences, including the lack of a substantial banking arm at the companies not named GE. Despite GE's recent efforts to downsize, GE Capital still delivers a not so trivial 34% of the company's earnings in 2013. In contrast, Siemens's financial services business provided only 7% of earnings in 2013.

Nonetheless, for those looking at the industrial sector and wondering whether GE looks like a buy relative to its peers, the following breakdown by the numbers is a good place to start your analysis:

Keep in mind, the charts above present a quantitative analysis of the companies, and, as my colleague Morgan Housel has pointed out, investing is more art than science. So be sure to take the data with a grain of salt.

On the whole, however, I find Siemens to be the one outlier I would avoid at this point, with the rest of the companies sitting in positions of strength. That's simply because Europe's flagging economy has left German companies stuck in neutral in recent years.

GE, meanwhile, measures up quite nicely, with a forward P/E that is lower than all of its American counterparts and earnings growth squarely in the middle of the pack. With its own CEO betting his bonus on the company recently, now looks like a good time to hop on board "the General."

And a chunky dividend to boot!
GE also bests the competition with an enticing dividend payout. Its 3.4% yield is actually 40% higher than the average of its four industrial peers! That alone might be enough for income-hungry investors, but if your appetite extends beyond this industry there's plenty more options on the table. Our top dividend analysts conducted in-depth analysis and put together a free list of nine high-yielding stocks that should be in every income investor's portfolio. To learn the identity of these stocks instantly and for free, all you have to do is click here now.

Isaac Pino, CPA owns shares of General Electric Company. The Motley Fool recommends 3M. The Motley Fool owns shares of General Electric Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers