General Electric's (NYSE: GE) stock has had a great run recently -- it's up 24% year to date, and up 187% from its market's crisis low on March 5 last year. Is it still worth buying?

Let's take a look at how GE stacks up against some of its peers, globally:


(2011 est. EPS)

Long-Term EPS
Growth Estimate




Berkshire Hathaway (NYSE: BRK-A) (NYSE: BRK-B)



General Electric



Philips Electronics (NYSE: PHG)



Loews (NYSE: L)



Siemens (NYSE: SI)



Source: Capital IQ, a division of Standard & Poor's.

A world-class company selling at average multiples?
The data I looked at (part of which is included in the above table) show that GE is squarely in the middle of its peer group along a wide array of valuation metrics: price-to-earnings based on estimated earnings per share for 2010, 2011, and 2012, price-to-tangible book value and dividend yield. A world-class company priced at average valuations? Surely that's a "buy" signal. Hold on: The companies in GE's peer group are hardly run-of-the-mill: Many of them are also superlative businesses (or sets of businesses, since we're talking about conglomerates).

Furthermore, General Electric is much more highly leveraged than its peers with a debt-to-equity ratio of nearly 435%. The next-highest ratio -- just 68% -- belongs to Siemens. The disparity in leverage is a product of GE's massive financing unit, GE Capital. While GE is reducing its dependency on this activity, it remains a significant source of profits ... and financial risk.

Buy 3M, sell GE
Boasting similar multiples, higher estimated earnings-per-share growth, and lower financial risk, I prefer 3M to GE. If you prefer GE, you should be able to explain why it deserves a higher multiple than 3M or why analysts are underestimating GE's future earnings growth. Based on this initial comparison, I expect 3M shares to outperform GE's over the next three to five years, but the higher conviction bet is that 3M will outperform the broad market. Consistent with the "high-quality stocks" theme, I think this Minnesota conglomerate is worth looking at now.

Between high valuations and slow growth, investors should expect disappointing returns from U.S. stocks over the next several years. Tim Hanson explains how to make more in 2010.

Fool contributor Alex Dumortier has no beneficial interest in any of the stocks mentioned in this article. Berkshire Hathaway and 3M are Motley Fool Inside Value choices. Berkshire Hathaway is a Motley Fool Stock Advisor selection and the Fool owns shares of Berkshire Hathaway. Try any of our Foolish newsletters today, free for 30 days. Motley Fool has a disclosure policy.