Coming into the turn of the Millennium, General Electric (GE 2.28%) and Cisco (CSCO -1.06%) were considered must-own stocks. The former had its hands in every important part of American manufacturing, while the latter was helping to connect the world via the Internet.

Since 2000, though, things have not gone well. While the S&P 500 has returned 154% -- inclusive of dividends -- these two have averaged a loss of 30%. Does that mean one or both of them are buys at today's prices?

Smart factory and industry concept with connected production robots exchanging data with internet of things (IoT) and cloud computing technology, businessman touching interface with icons in gears

Image source: Getty Images.

That, of course, is a question that's impossible to answer with 100% certainty. If we examine these two companies through three different lenses, though, we can get a better idea of which is the better bet. 

Financial fortitude

The first facet we are evaluating is the easiest to discern: financial fortitude. If a financial crisis were to hit tomorrow, there are three different effects such a downturn could have:

  • A fragile company will go bankrupt, likely due to high debt burdens, not enough cash, and weak free cash flow.
  • A robust company might suffer in the short term but will emerge largely unscathed -- thanks to a healthy cash balance, manageable debt, and reliable cash flows.
  • An antifragile copmany will be one that actually emerges from a downturn stronger -- relative to the competition -- over the next decade.

Companies can grow stronger in such situations by buying back shares on the cheap, acquiring distressed rivals, or simply bleeding the competition out by undercutting them on price.

Keeping in mind that Cisco is valued at about 75% bigger than GE, here's how the two stack up.

Company Cash Debt Free Cash Flow
GE $82 billion $109 billion $3 billion
Cisco $79 billion $26 billion $14 billion

Data source: Yahoo! Finance. Cash includes short and long-term investments. Free cash flow presented on trailing-12-month basis.

This is a very easy call to make. Cisco has a much better balance sheet -- with a net-positive cash position -- and much better cash flows. That means if a crisis were to hit, Cisco would have more options than GE.

Winner = Cisco


Next, we have a murkier variable: valuation. While there's no single variable that will tell you if a stock is "expensive" or "cheap," we can consult several data points to build out a more holistic picture.

Company P/E P/FCF PEG Ratio Dividend FCF Payout
GE 12 38 2.5 3.4% 283%
Cisco 17 14 1.7 3% 42%

Data source: Yahoo! Finance. E*Trade. P/E calculated using non-GAAP earnings when applicable.

On the face of it, General Electric looks cheap on earnings and cash-flow ratios. It also has a heftier dividend. At the same time, though, when growth prospects are taken into consideration via the PEG ratio, Cisco appears to be trading at a 30% discount.

Not only that, Cisco's dividend appears to be more sustainable, though GE's decision to recently cut its dividend by 50% and sell off some assets means it's safer than it appears.

Taking all of this into consideration, I'm calling this one a draw.

Winner = Tie

Sustainable competitive advantage

Finally, we have the most difficult -- but also most important -- facet to evaluate: a company's sustainable competitive advantage. Often referred to as a "moat" in investing circles, this is the special something that keeps customers coming back to one company -- year after year -- while holding the competition at bay for decades.

Historically, GE's key moat was provided by its brand and scale. According to Forbes, GE's brand is currently worth $38 billion -- good enough for 11th globally. But that doesn't mean the company is sitting pretty.

Organic revenue from the company's core industrial and power divisions has consistently been coming in below expectations. That's troublesome, because as technology has changed the landscape of manufacturing, many of the advantages of GE's scale have become liabilities -- making it too large and lumbering to pivot as the market's needs change.

Cisco, on the other hand, also benefits from a strong brand name -- worth $31 billion and coming in 15th place globally. But Cisco also benefits from another moat that gives it an edge: high switching costs.

The company's legacy network switches and routers are ingrained in many networking products the world over. That said, the hardware may soon become obsolete as tech giants transition toward newer products.

On that front, while Cisco was slow to transition to a subscription-based, infrastructure-as-a-service (IaaS) model -- which has lower overhead costs and is more easily updatable -- it is starting to gain traction. While not a super-wide moat, that's enough to give the company the edge over GE.

Winner = Cisco

My winner is...

So, there you have it, Cisco is my winner. The company has a wider moat and stronger balance sheet than GE, and it seems fairly priced. That being said, I'm not a huge fan of either company. GE's shortcoming are on full display, here, but Cisco's business is under siege from Arista Networks -- you can read more about that here -- and that means I'll be not only staying away from the stock, but not making an outperform call on my CAPS profile, either.

I think there are better places for your money.