General Electric (GE 1.21%) has been struggling to get off its back foot since the 2007 to 2009 recession. Three CEOs later, and as many turnaround plans, it looks like the business may finally be solidifying. Before buying this icon, however, you should consider it compared to some peers. For example, 3M (MMM -0.83%) could be a good alternative. Here's a head to head to see why.
1. The recent run
General Electric's stock is up roughly 85% over the past year. 3M's gain is a relatively meager 25% or so. Over the past three years GE's shares have risen about 4% while 3M's are basically flat. Since the start of 2007, however, GE's stock is off by more than 60% while 3M's shares have gained 150%. These are three very different time periods, but the big takeaway is that GE's stock has been performing better of late. However, that hasn't been enough to make up for the hit the business took during the 2007 to 2009 financially-led downturn.
Image source: Getty Images.
During that period, GE's foray into finance caused massive financial harm, leading to several rounds of restructuring, asset sales, and dividend cuts. That's a very truncated summary of what has been an incredibly trying time for the business, but the truth is that GE is not the same company today that it was in 2007. That's notable because, while there is likely to be more recovery potential in GE's stock, it may take a long time before it regains anything close to prior peaks. By comparison, 3M is still the lumbering giant it has been for decades. There's an important level of comfort in that for moderate and conservative investors.
2. The portfolio
Today, GE breaks its business down into four main categories: power (21% of sales), renewable energy (20%), aviation (32%), and healthcare (26%). It makes fairly large industrial products that service businesses in each of these areas. 3M does things on a somewhat smaller scale, creating products like adhesives and dental supplies not windmills and jet engines (two of GE's core products). 3M's business is broken down across its safety & industrial (35% of sales), transportation & electronics (27%), healthcare (24%), and consumer (14%) segments.
While both of these companies would fall into the industrial conglomerate category, 3M's business has more diversification built into it. Diversification is good for your portfolio and it can be good for companies, as well. To put a figure on that, GE's sales fell 16% in 2020 while 3M's were flat. To be fair, 2020 was an extremely unusual year, given the coronavirus pandemic, but 3M weathered the hit better because of its vast mix of products. Demand for GE's big, costly industrial items were hit much harder. Once again, conservative and moderate investors will likely favor 3M.
3. The dividend
This isn't perhaps a fair comparison, given that GE has been working through a tough turnaround that has left its dividend at a token penny a share per quarter. At some point it will likely start to increase the dividend again, which might end up being a sign that its turnaround is finally complete. But, for now, dividend investors won't be too happy with the shares and the scant 0.3% dividend yield. 3M has increased its dividend for more than 60 consecutive years, making it a Dividend King. The current yield is around 3%, which is toward the high side of its historical range. It has been higher, so using yield as a rough gauge of valuation, you wouldn't call 3M a screaming buy. But it is probably fairly valued to slightly cheap. Again, 3M ends up looking like the better option for most investors.
GE Dividend Per Share (Quarterly) data by YCharts
4. Nothing is perfect
GE has been in turnaround mode for over a decade thanks to some pretty big self-inflicted wounds (straying too far into the finance industry was the biggest issue). It is getting past major structural problems as it slims down its operations, with the focus now on getting its remaining businesses back on more solid footing. So there's progress here, but still issues.
But don't think that 3M is without its own warts. The biggest one right now is a pair of lawsuits that it is fighting around environmental and product quality issues. The costs could end up being material. However, the core of the business remains strong and 3M is a large and financially robust company that should be able to handle the legal costs should it end up losing these cases. This isn't as fundamental an issue as what GE has been dealing with. All in, it would probably be best to view GE as a special situation stock as it looks to complete its turnaround effort, a type of investing that's really best suited to more aggressive types. Buying 3M involves some uncertainties, but they won't likely scare off conservative investors.
Boring is better
When you add it all up, 3M looks like the safer option here. That's not to suggest that GE won't reward investors with larger stock gains, as it has over the past year. But that's a function of the high risk turnaround that's taking place -- if the effort stalls the shares could drop just as quickly. Most investors will be better served sticking with a slow and steady name like 3M. Perhaps when GE starts to increase its dividend again it will be time for a reexamination, but for now 3M looks more appealing.
