Investors sifting through the industrial sector for historical powerhouses will certainly have penciled United Parcel Service, (NYSE:UPS), Caterpillar, (NYSE:CAT), and General Electric (NYSE:GE) onto their lists. For good reason: each of those three companies has an intriguing story for investors.

UPS is the largest player in an industry where size is a serious advantage. Caterpillar is the world's largest heavy mining equipment manufacturer that will emerge a leaner more efficient company when its global business turns around. General Electric is in the process of exiting the nightmare show that was known as GE Capital, and bringing back its business focus to its core industrial portfolio.

So, which of these three is the better buy? Our analysts debate.

Daniel Miller: I'm pretty well entrenched in my bearish Caterpillar stance, but both UPS and GE seem like valuable additions to many portfolios. Personally, General Electric seems like the better buy right now because of the complete transformation that is under way. General Electric sold off GE Capital and is increasingly focusing on its core industrial portfolio of businesses.

GE is extremely well established in industrial business segments such as aircraft engines, locomotives, and turbines, among many others. Its massive installed base of industrial equipment, industry knowledge, and ability to create synergy between its many businesses, creates a sustainable competitive advantage.

Because of that competitive advantage GE's industrial segment posted 5% growth in operating profit during the third quarter, with 9% organic growth, and five of its seven business segments growing earnings. Further, its industrial segment operating margins expanded by 100 basis points and gross margins increased 80 basis points.

In addition to GE's improving industrials business, one aspect that puts GE above UPS for me currently is its backlog of orders. GE's backlog sits at an impressive $270 billion total, as of the third-quarter, with $199 billion of that coming from high margin services.

Chart by author. Information source: General Electric quarterly presentations.

GE offers a combination of favorable attributes that few companies can match: GE has a huge backlog of orders, a growth story as it brings its industrial business back into focus, and synergy between its many businesses that creates a competitive advantage. That's why out of these three companies, GE seems like the better buy. 

Jason Hall: From a valuation perspective, it's pretty easy to get pulled in by Caterpillar right now. After all, the company is trading at a pretty substantial discount to both UPS and GE by just about every valuation multiple you can think of:
The only problem with using that rationale, it that it ignores the incredibly weak environment Cat is operating in, and that I don't think its business has reached the bottom of the demand cycle yet. In other words I think things are going to get worse for Cat before they get better.
For GE, there's a lot to like, and management has really made good on its commitment to unload the consumer finance business, and focus on growing the core industrials segments.
UPS is the most "expensive" of these stocks based on price to earnings valuation, but I think that's because it's also the business with the best prospects for growth.
As the global economy continues to expand, and e-commerce becomes even more prevalent than it already is, shipping and logistics demands will only continue to grow around the world.
GE will also benefit from this through its locomotive and jet engines business, not to mention the demand for more energy around the world as emerging markets develop and the global middle class grows. But right now, UPS looks like the best buy out of this group.

Matt DiLallo: I agree with both Daniel and Jason that Caterpillar has a tough road ahead of it. China has noticeably slowed down, which is impacting its appetite for commodities. This has hit commodity prices hard, which is hurting both miners and energy companies. Because commodity producers are feeling the pinch, they're not investing in new equipment, which hurts a portion of Caterpillar's business.

In some regards we could make the same case for GE, especially on the energy side after the company made a number of large energy-related acquisitions over the past few years. Most recently it spent $3.3 billion in 2013 to buy Lufkin Industries, which makes artificial lift equipment like oil pumps. It is a business that is under pressure now that oil prices have collapsed, which has reduced demand for the oilfield equipment that GE makes.

Photo credit: Andrew Pabon via Flickr.

Having said that, there are signs on the horizon that oil prices are at least starting to stabilize and could rebound. Demand for oil has accelerated this year and is expected to grow by 1.8 million barrels per day, with another 1.2 million barrels per day of incremental demand expected next year. Further, supplies are finally starting to come down, with U.S. oil production in particularly noticeably declining, with further declines expected next year. This should lead to a rebalancing of the oil market, and potentially an improvement in the oil price next year, which would fuel demand for oilfield equipment.

This is just one of a number of compelling catalysts on the horizon for GE. We can add to this the pending closure of its acquisition of Alstom and the jettisoning of GE Capital from its portfolio that Daniel alluded to, and not to mention its industrial equipment tailwinds. UPS simply doesn't have the same magnitude of near-term catalysts. That's why if I were choosing between the three, I'd go with GE.

Daniel Miller has no position in any stocks mentioned. Jason Hall has no position in any stocks mentioned. Matt DiLallo has no position in any stocks mentioned. The Motley Fool owns shares of General Electric Company. The Motley Fool recommends United Parcel Service. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.