Emerson Electric Co. (NYSE:EMR) CEO David Farr is betting on a “manufacturing renaissance” in the United States. He cites oil and gas leading to cheaper energy costs as one catalyst, explaining that “from the oil and gas renaissance you’re going to see a lot of investments going in — very technology-based investments, typically,” continuing by stating that (in reference to manufacturing) “now what we have left [in the U.S.] are the very high-end technology-based jobs.”
Farr believes that a high level of innovation and technology will “rebuild some of the manufacturing base that has left the country,” but also made it clear that “It doesn’t mean you’re going to see a lot of jobs flying back here.”
Old industry, new technology…
Industrials are indeed integrating themselves with technology. Honeywell International Inc. (NYSE:HON) is also betting on technological innovation in relation to manufacturing. According to Darius Adamczyk, President and CEO of Honeywell International Inc. (NYSE:HON) Process Solutions,
“The manufacturing plant of the future will be more than just machine-to-machine connections; it will also connect data and people better and faster… Companies need to get to first production faster than before, they have to do more with less manpower, and they face increased safety and security threats. They need more than just our technology – they also need service consultancy, data visualization and analysis, and collaboration tools.”
Sound familiar? This is because General Electric Company (NYSE:GE) has also been working on its own version of connecting data and people faster. The company is planning its industrial Internet network, which will blend industry with Internet, and will be receiving over $500 million in investment money from General Electric Company (NYSE:GE), according to CEO Jeff Immelt. Eventually everything from jet engines to refrigerators may be connected and made more efficient if GE’s vision is made true.
Like Farr, Immelt sees that energy and technological innovation has huge growth drivers domestically. Immelt also has his sights on China. General Electric Company (NYSE:GE) envisions up to $3 trillion in accumulated growth opportunities for Chinese companies by 2030 due to the “industrial internet”.
Technological innovation (such as the industrial internet and shale technology), as well as the oil and gas-led “manufacturing renaissance”, will likely benefit the industrials immensely–so how to invest?
Valuations– taking size into consideration
First off, market capitalization must be noted, as General Electric Company (NYSE:GE) is well over twice the size of both Emerson and Honeywell combined:
| P/E | Forward P/E | Dividend (Yield) | Market cap (in billions) | |
|---|---|---|---|---|
| GE | 17.23 | 12.78 | 0.76 (3.30%) | $240.10 |
| HON | 19.89 | 13.91 | 1.64 (2.10%) | $60.53 |
| EMR | 19.85 | 14.36 | 1.64 (2.90%) | $40.23 |
Data provided by Yahoo! finance 06/06/2013
GE is also cheaper, both now and going forward in relation to earnings. General Electric Company (NYSE:GE) pays out the highest yielding dividend. So is GE the no-brainer? There’s usually a catch when things seem too good to be true. Digging a little deeper, the high-yielding dividend paid by GE hasn’t been as safe as that of its competitors.
While the past doesn’t dictate the future, this is definitely something to keep in mind. So why the cut? Much of it had to do with the financial crisis.
GE as a financial stock?
Unlike Emerson and Honeywell International Inc. (NYSE:HON), General Electric Company (NYSE:GE) has GE capital, which is a financial services arm. This caused much more pain during the financial crisis for GE than competitors for obvious reasons. Regulators recently voted to propose dubbing certain non-bank financial companies “systemically important”, which will most likely include GE. If this legislation becomes reality, GE capital may have to obey things such as capital requirements and pass stress tests if they are deemed “too-big-to-fail”.
