This Just In: More Upgrades and Downgrades

At The Motley Fool, we poke plenty of fun at Wall Street analysts and their endless cycle of upgrades, downgrades, and "initiating coverage at neutral." Today, we'll show you whether those bigwigs actually know what they're talking about. To help, we've enlisted Motley Fool CAPS to track the long-term performance of Wall Street's best and worst.

What's German for "General Electric"?
For months now, I've been singing the praises of General Electric (NYSE: GE  ) , a company whose valuation is as gorgeous as its dividend payouts are generous. So naturally, when ace stock picker Standpoint Research called out Siemens (NYSE: SI  ) as a stock it would want to own, that caught my attention.

Why? Because according to Standpoint, Siemens is basically German for "GE." Initiating coverage on the company yesterday, Standpoint argued that "Siemens, market cap $77 bln, is the German equivalent of General Electric, market cap $157 bln" -- but with twice as much room to grow.

Says Standpoint: "With the German market down 30% in seven weeks we feel it makes sense to add a recommendation from there. ... Siemens has dropped from $147 to $87 since May 2 and is trading at 2001 prices." And though the analyst admits that it's "dangerous to try and pick a bottom," the attraction of a 30%-off sale is self-evident. But is it the right thing to do?

Why go anywhere else?
The most obvious objection to buying "the German GE," I think, is GE itself. Why by an analog when you can own the original? At 9.6 times forward earnings, General Electric shares are cheaper than the average stock on the Dow Jones Industrial Index (INDEX: ^DJI), growing faster, and paying better dividends. Peer industrialists Boeing (NYSE: BA  ) , Textron (NYSE: TXT  ) , and United Technologies (NYSE: UTX  ) all cost more than GE and pay skimpier dividends to boot.

Making the story even more interesting, yesterday GE announced a plan to invade Siemens' home turf, doubling its presence in Germany over the next five years and aiming to steal market share from Siemens in Germany, where GE's doppelganger currently controls 50% of the health-care and gas-turbine markets.

Why? Because we like you!
So why would you even consider investing in Siemens, if GE offers a better value and is moving to supplant Siemens in its home market to boot? Not to put too fine a point on it, but one good reason to consider this is that Standpoint is telling you it's a good idea. And according to our CAPS data, Standpoint is one of the best value-spotters out there on the market today, correctly picking winners 63% of the time and outperforming 96% of the investors we track in the process.

It's also worth pointing out that, similar as Siemens may be to GE, there are differences that argue in the stock's favor. For one thing, Siemens is currently outgrowing its rival. According to Capital IQ, most analysts expect Siemens to post 17% annual profits growth over the next five years, versus a bit more than 14% for GE.

Siemens also seems to have more potential as an investment than GE does. It's smaller,for one thing, so it has more room to grow. Siemens also sells for a lower multiple to sales, 0.7, versus GE's 1.1 price-to-sales ratio. And of course, Siemens managed to avoid exposing itself to America's mortgage mess back in 2008 -- so while GE still struggles to extricate itself from that fiasco, Siemens doesn't have to.

Foolish takeaway
Make no mistake: I like GE as an investment as much as I ever have. Still, at a valuation of less than 13 times trailing earnings, 8.4 times forward earnings, and 11 times trailing free cash flow, Siemens seems a worthy international alternative.

Will Siemens succeed? Add it to your Watchlist and find out.

Fool contributor Rich Smith does not own shares of any company named above. You can find him on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 414 out of more than 180,000 members.

The Motley Fool owns shares of Textron. We Fools don't 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.


Read/Post Comments (3) | Recommend This Article (5)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 13, 2011, at 7:05 PM, lovesdos wrote:

    forty-five years ago I competited with GE and in Europe we (Reliance Electric & Engineering Co.) worked with Siemens. Reliance no longer exsists. I have been a life-long fan of GE. I own about 60 stocks but my largest single holding is GE (8% of the total). One of my two investing rules is only American companies and the other is only companies in the S&P 500. I modestly ignore the second rule. I recently decided to buy a steel company because of recent material on the Fool. Because of the two rules I ended up with Necur. At first I did not realize MT was an oversea's firm and yeaterday I bought 250 shares at $17.05 and sold them today at $17.52. I was interested in MT because I think they own two companies in Cleveland that were great customers of mine when I was at Reliance but then it dawnrd on me they were not American. Anyhow I think GE is a great company..

  • Report this Comment On September 13, 2011, at 10:05 PM, TMFDitty wrote:

    Correct. Arcelor Mittal is "foreign" -- but it is just as correct to think of it as "multinational," much like GE (or Siemens) is multinational with operations in multiple locales.

    TMFDitty

  • Report this Comment On September 14, 2011, at 5:59 PM, lovesdos wrote:

    the difference is if i own stock in ge, i actually own ge shares and nobody takes some of my dividends before i get them, if i own mt i own something thru a thuird party that says i have an interest in mt and the dividends may be taxed, that complicates my irs return and i may not end up with the same dollars. there are plenty of opertunities in american based firms so i limit myseklf to those.

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