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.
