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)
Fairfield, Conn.
$35.97
52-week low-high: $29.55-$37.75
$381 billion market cap

By Robert Brokamp (TMF Bro)

It sure is easier to root for your stock right after it announces good news. Last week, General Electric (NYSE:GE) notched up its earnings guidance for the quarter by a penny and said it expects to rake in $2.6 billion (that's billion with a "b," as in "bodacious") from its stock sale of Genworth Financial. In other words, GE is doing just what it has always done: focus on its most valuable and profitable businesses, while shedding those that will keep the company from achieving double-digit earnings growth. In the fourth quarter of last year, profits increased 18%; earnings growth for the year is expected to clock in between 12% and 17%. That's impressive growth for one of the oldest and biggest companies in the entire universe. You just can't keep a good company down.

How does GE do it? After all, if "mature" companies are supposed to slow down, General Electric should be in a wheelchair with one flat tire, not cruising past the youngsters on the track. The company knows how to trim the fat (some of which would be lean enough for other organizations). Former CEO Jack Welch was notorious for instituting a corporate culture that regularly cut the lowest-performing 10% of the workforce.

Current chief Jeff Immelt has maintained that high-achieving culture, but with a twist. A profile in the March 24 issue of BusinessWeek described how Immelt is pushing executives to be creative, take risks, and improve customer service. Immelt was quoted as saying, "You're not going to stick around this place and not take bets." According to the article, 20% of bonuses this year will be based on how well a business meets established measures of customer service.

Does Immelt think it'll work? He must -- otherwise, why would he have bought 27,590 shares on the open market last month? It's a good sign when the CEO lays down a million bucks on his company.

My opponent, the honorable gentleman Mathew Emmert, will tell you that Diageo is a tasty investment because, in good times and in bad, people appreciate a good, stiff drink. True. But let me counter that, in good times and in bad, people also appreciate TV, movies, medical devices, power-generating equipment, insurance, loans, transportation, and lightbulbs -- all stuff GE provides. The company infused with the spirits of founder Thomas Edison and uber-CEO Jack Welch will best the company that sells the spirits of Johnnie Walker and Captain Morgan.

I'll drink to that.

Robert Brokamp , editor of the Rule Your Retirement newsletter service, does not own any of the companies or spirits mentioned in this article.

Diageo (NYSE:DEO)
 London , U.K.
 $57.13
 52-week low-high: $48.21-$58.96
 $43 billion market cap

By Mathew Emmert (TMF Gambit)

I must say it's difficult to be up against General Electric in this round, since I've owned shares of this bellwether for several years and like the company. As my venerable colleague Robert Brokamp pointed out, this conglomerate makes everything from lightbulbs to jet engines, which is impressive.

However, I would argue that if you partake of just one Diageo product in the right quantity, you won't give a Wiener schnitzel about all the junk that GE makes -- and that's even more impressive. I mean, hey, General Electric may be creative and all, but do its products change the way you interpret reality? I don't think so. Diageo is clearly superior on this front, and we're just getting started.

Diageo is a cash-flow machine with a lot of potential for paying out big dividends and implementing share buybacks. The company dominates its high-margin industry, boasting more top-20 brands than its next five competitors combined. With a massive team of exclusive distributors, the firm boasts an extremely competitive market position.

Liquor is one of those evergreen businesses that just keep turning out the greenbacks year after year. Folks simply don't care much about economic weakness when it comes to making this purchase. In fact, in a bad economy, or during significantly stressful global events, liquor sales have been known to increase as people attempt to drown their sorrows and settle their nerves. That makes this firm a nice portfolio hedge against rising interest rates and weak economic cycles. On the other hand, a weak economy means a weak GE.

In the end, we're looking at a predictable profit machine with a proven history of distributing its hoard to shareholders -- you need look no further than the current 3.4% yield to see that. Of course, these are all reasons that I recommended shares of Diageo in the pages of my dividend newsletter, Motley Fool Income Investor, back in April 2004.

I currently value Diageo at $63 a stub, meaning there's plenty of value left for long-term investors. General Electric shares, however, appear fully valued here, so let's celebrate our victory with a drink, shall we?

Mathew Emmert, editor of the Income Investor newsletter service, owns shares of General Electric.

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