The following article is part of The Motley Fool's "Stock Madness 2005," a contest based loosely on the annual NCAA College Basketball Tournament, a.k.a. March Madness. From March 17 to April 4, our writers and analysts will engage in head-to-head competition with each other, advocating and arguing on behalf of 64 stocks we've selected as among the most interesting to Foolish investors. You, dear readers, are the fans and referees -- you'll read these exciting duels and then vote for the stock you think is the better investment... and should therefore move on to the next round of play. The company that survives six "games" will be our tournament champion, and its writer our most valuable "coach."
But, please, make no mistake -- "Stock Madness 2005" is a GAME!
Our writers are doing this for fun. They are enjoying the spirit of competition and the art of debate. They are delighting in the search for positives in the companies they've drawn... and negatives in the companies they're pitted against. They are NOT necessarily recommending these stocks as the ones they believe in above all others. As ever, YOU must decide whether the stocks we're writing about -- winners and losers -- are deserving of your investment dollars.
General Electric (NYSE:GE)
The Entire World
$35.74
52-week low-high $
28.88-$37.75
Market cap: $386.6 billion
By Robert Brokamp
Want to see a cool chart? Check out how General Electric has performed over the past 35 years compared with the Standard & Poor's 500. That's right -- more than three decades of market-beating performance. Of course, General Electric has been around for much longer than a measly 35 years. When you talk GE, you're talking history with a capital H. It's the only inaugural member of the Dow Jones Industrial Average still at the ball. Thomas Edison helped found the company. (It was actually Edison General Electric until it merged with Thompson-Houston in 1892.) I think Socrates was on the GE board of directors (until he got caught having an affair with the editor of the Hemlock Business Review).
Now, let's look at another chart -- it's similar to the previous one, but I've added in the performance of my opponent, ABB. Check it out. See that sad, little red line -- the one that looks like a worm being trampled by an elephant? Yep, that's ABB -- an investment that has flatlined.
Yeah, yeah, I know -- past performance is not indicative of future insults. Perhaps you like ABB because it has lots of testoster-ocious things like motors, robots, and "high-voltage products" (as described on the company website) -- and you think this makes for a good investment. But you know what? You get all kinds of manly stuff with General Electric, too, through its Industrial, Transportation, Energy, and Security business units. But you also get Consumer and Commercial Finance and NBC Universal. When you own GE, you don't need to become the next Apprentice -- you own a piece of the franchise.
General Electric is so diversified, yet so efficient, that it's like owning a market-beating mutual fund -- but with a bonus. As the editor of the Fool's Rule Your Retirement newsletter, I regularly emphasize the value of high-yielding stocks to my readers. So I must mention that GE is paying better than most mutual funds these days. Its 2.43% yield is a third higher than the 1.82% you get from Spiders (AMEX:SPY). The dividend yield on ABB? Zip. Nada. Zilch. Put it all together, and it is clear that GE is the ultimate ABB-cruncher.
Robert Brokamp doesn't own any of the companies mentioned or insulted in this article, though he is the editor of the Rule Your Retirement newsletter service. Give it a free 30-day free trial. It doesn't have robots or high-voltage products, but it will help you get an actual retirement plan.
ABB (NYSE:ABB)
Zurich
$6.29
52-week range: 4.86-6.73
Market cap: $12.97 billion
By Stephen D. Simpson, CFA
It's not often that investors have the chance to buy a turnaround opportunity that is still the No. 1 or 2 company in a range of industries that are both "mission critical" and still growing. ABB is just such an opportunity. A world leader in automation technologies and power equipment, ABB is well-positioned to take advantage of global economic growth.
While the market for automation technology is somewhat mature in the wealthiest economies, countries such as China, India, Turkey, and Brazil are only just beginning to turn from labor-intensive to technology-intensive manufacturing processes. As these emerging economies look to grow, they will eventually want (and need) the same sorts of automation technologies that have made Western economies so productive.
In the power market, not only are emerging markets working hard to add electrical capacity but also many developed economies have outdated and outmatched equipment. In the U.S., for instance, the power transmission infrastructure is about 40 years old on average and badly in need of replacement and/or upgrades.
Even though the stock has recovered nicely from its lows, I believe there is still room for it to run. The stock currently trades at only 16 times 2005 estimates, is cash flow positive, and has a manageable level of debt. What's more, the company's operating efficiency is on the way up, and margins improved considerably in 2004.
It's rare that investors get the opportunity to buy market leaders at market-discount prices. Assuming that the global economy continues to grow, I believe ABB is very well-positioned to maintain its lead across the world and leverage itself to new business opportunities in emerging markets.
While my competitor General Electric is indeed a worthy foe, it already does everything and might find above-average growth difficult, especially if higher rates hurt its finance business.
Fool contributor Stephen Simpson has no financial interest in any stocks mentioned.
Rebuttals
Ah, yes -- the old "wait until (name of company) hits China, India, and Swaziland -- it'll really take off!" Please. If anyone will benefit from overseas growth, it'll be the global behemoths like General Electric, which already have the operations, relationships, and best local restaurants on speed dial all over the world. If you want worldwide upside, go with the one of the biggest companies in the world. It'll bring good things to your life. -- R.B.
When you get a Fool talking about stock charts, you know he's on the ropes. I invest for the future, and I see a world that needs more automation and more power equipment. True, GE will see some of that, but it's like comparing a yacht to an oil tanker -- add 100 extra horsepower to one and you see a difference, but add it to the other and you don't even see a ripple. -- S.S.
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