Unlike Goldman Sachs (NYSE: GS) and JPMorgan Chase (NYSE: JPM), which have made a splendid exit from the credit crisis, 2009 couldn't end soon enough for industrial-financial giant General Electric (NYSE: GE). And while the company expects flat growth in 2010, it's projecting "solid growth for 2011 and beyond." Should investors pick up shares before that growth begins to materialize?
The GE Capital anchor
GE's revenues and profits in the fourth quarter of 2009 and for the full year declined substantially with respect to the prior year periods. The company's financing unit, GE Capital, was the largest anchor on growth. At the beginning of last March, I wrote that I thought it "highly unlikely that GE Capital will earn $5 billion this year, as the firm projects." In fact, GE Capital earned less than half that amount, as profits shrank by nearly three-fourths year-on-year.
As a self-respecting CEO does, Jeff Immelt put a positive spin on things: "Every segment at GE Capital was profitable with the exception of Commercial Real Estate." The trouble is, as I pointed out yesterday, there are indications that the commercial real estate sector will continue to deteriorate this year.
There are other businesses
It's not all gloom-and-doom, though, as GE's total backlog of equipment and services rose to a record $175 billion. GE's first-class industrial businesses look well positioned to benefit from infrastructure spending in emerging markets.
A better alternative to GE shares
GE shares could well outperform the Dow over the next three to five years as the company returns to growth. However, another conglomerate is, in my opinion, a clearly superior alternative for your money: Warren Buffett's Berkshire Hathaway (NYSE: BRK-A) (NYSE: BRK-B). Why pay 1.45 times book value for GE when you can pick up Berkshire shares at a book value multiple of 1.34? By historical standards, that's a good price for a better-run, higher quality set of businesses than GE's. Besides, by purchasing Berkshire's stock you could end up owning GE shares indirectly. As a part of a $3 billion investment in GE preferred shares, Berkshire received warrants to purchase nearly 135 million common shares; exercising those warrants would make Berkshire one of GE's largest shareholders.
In the next few years, GE will derive most of its growth from overseas markets. Smart investors are positioning themselves the same way. Global Gains advisor Tim Hanson identifies the top markets right now.
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You can follow Fool contributor Fool contributor Alex Dumortier on Twitter; he has no beneficial interest in any of the companies mentioned in this article. Berkshire Hathaway is a Motley Fool Inside Value selection. Berkshire Hathaway is a Motley Fool Stock Advisor pick. The Fool owns shares of Berkshire Hathaway. Try any of our Foolish newsletters today, free for 30 days. Motley Fool has a disclosure policy.
