General Electric Company (GE): A Slowly Shrinking Finance Arm

Less Baggage

Investors looking for an industrial giant without the same level of finance arm risk might want to look at Siemens AG (ADR) (NYSE:SI). The company is a bit smaller than GE, but is one of the industrial giant’s next largest competitors. More important, Siemens AG (ADR) (NYSE:SI)’ finance arm is more focused on supporting Siemens’ business than GE’s finance arm. If General Electric Company (NYSE:GE) does a partial spin off of its finance divisions, it would probably start to look more like Siemens AG (ADR) (NYSE:SI).

That said, Siemens’ profit margins have been around three percentage points lower than GE’s over the last couple of years. The company recently announced plans to cut thousands of jobs in an effort to increase efficiency. So, there is reason to believe that profit margins could improve over the next couple of years as cost saving work through to the bottom line.

Not an Either or

Both GE and Siemens shares are off of their highs. GE’s yield is a little over 3% and Siemens’ yield is a little under 3%. Moreover, GE has been focusing on returning value to shareholders via dividends. As such, income investors are probably better off with GE so long as keen attention is paid to the still large finance arm.

Investors who have been looking at General Electric Company (NYSE:GE) as a turnaround play, however, might want to take a quick review of Siemens. They are similar companies, but GE might be at a point where the good news is already out. Siemens, which is trading at a lower P/E multiple than GE (which itself is trading at a P/E below some of its peers), has the potential for margin improvement through cost savings. That could lead to stronger than expected bottom line performance at Siemens and potential upside for the stock.

The article A Slowly Shrinking Finance Arm originally appeared on Fool.com and is written by Reuben Brewer.

Reuben Brewer has no position in any stocks mentioned. The Motley Fool owns shares of General Electric Company. Reuben is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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