The many faces of GE
General Electric Company (NYSE:GE), as mentioned before, operates through six distinct segments: Energy Infrastructure, Aviation, Healthcare, Transportation, GE Capital, and Home & Business Solutions. In many ways, you would need to buy at least six other companies to give you the same level of diversification.
Energy infrastructure
Let’s start with the Energy Infrastructure segment, which accounts for 31% of GE’s sales. This includes gas turbines, wind turbines, solar technology, nuclear power plants, and other energy businesses. This would be the equivalent of investing in First Solar, Inc. (NASDAQ:FSLR) or an equivalent.
I wholeheartedly believe in the solar industry over the long term, and there are very few major players like GE who have the resources to make an impact in the sector who already have solar programs. I actually prefer General Electric Company (NYSE:GE) to investing in a pure solar company at this stage in the industry, as it gives a lot of solar exposure without the tremendous volatility of solar stocks.
Avionics
The Aviation segment accounts for 13% of sales and makes, sells, and services jet and turboprop engines for aircraft for both military and commercial applications. To gain this sort of exposure to aviation, a stock like The Boeing Company (NYSE:BA), or maybe Lockheed Martin Corporation (NYSE:LMT) would do the trick. With increased spending by both government and private enterprises that comes along with the improving economy, the aviation industry in general should benefit tremendously.
Healthcare
The Healthcare segment (13% of sales) consists of a wide variety of medical imaging products, such as MRI machines and X-rays. A company like Hologix would substitute fine for this exposure. However, investing in General Electric Company (NYSE:GE) as opposed to a pure healthcare play wouldn’t be a bad idea. With the constant threat of cuts in government health programs such as Medicare and Medicaid, this industry’s fate is far from certain over the next several years.
Transportation
The Transportation segment makes locomotives and other transport equipment, similar to CSX Corporation (NYSE:CSX). While this segment only accounts for 4% of GE’s sales, it is still significant exposure to rail transportation. Rail transportation should be another beneficiary of an improved economy. With more infrastructure and construction projects, there are more materials that need to be hauled long-distance.
Home and business solutions
Home and Business Solutions accounts for 8% of GE’s sales and includes perhaps the most well-known of GE’s products, their home appliances such as refrigerators, freezers, etc. This would be similar to an investment in Whirlpool Corporation (NYSE:WHR). Appliance makers are a great way to profit from an improving housing markets. Kitchens are generally the first thing that gets renovated, either by the person trying to sell the home hoping to get a higher price or by the buyer who bought a fixer-upper to rehab.
GE Capital: The “black sheep” of GE
Finally, there is General Electric Company (NYSE:GE) Capital. Although this segment got GE into some trouble during the financial crisis with its exposure to bad mortgages, the majority of GE Capital (which makes up the largest percentage of GE’s revenue – 32%) is a good finance unit. They offer commercial lending, consumer finance, real estate, and aviation financing. This would be like investing in, say, BB&T Corporation (NYSE:BBT), without the depositary side of banking.
Other ventures
In addition to these six segments, GE is in a partnership with Comcast Corporation (NASDAQ:CMCSA) called NBC Universal, LLC, which pooled NBC Universal’s assets with Comcast Corporation (NASDAQ:CMCSA)’s cable networks and regional sports networks. This venture is owned 51% by Comcast and 49% by GE. So, add Comcast to the “diversification” list you would need to buy.
I would avoid Comcast Corporation (NASDAQ:CMCSA) as an individual investment right now, especially with the mounting competition from satellite TV as well as the newer TV offerings from Verizon Communications Inc. (NYSE:VZ) and AT&T Inc. (NYSE:T) which are gaining in popularity at a rapid pace.
Valuation and competition
For its growth potential, GE actually trades at a relatively cheap valuation of 14.4 times forward earnings. Consensus estimates call for forward growth of over 10% for the next few years, which justifies the P/E ratio and then some. General Electric Company (NYSE:GE) is also a very good dividend payer with a 3.2% yield currently. They have raised the payout every year since the financial crisis, and I wholeheartedly expect this trend to continue in the future.
As far as competition goes, it is difficult to call any other company a “direct” competitor due to the diverse nature of GE’s businesses, however one that comes close is 3M Co (NYSE:MMM)
3M Co (NYSE:MMM) is a similarly diversified company with operations in transportation, healthcare, safety, security services, electronics, communications, and more. One major difference is that 3M Co (NYSE:MMM) does not have significant exposure to the financial sector, and as a result, the company did not get hit very hard by the market crash a few years ago.
For comparison’s sake, 3M Co (NYSE:MMM) trades at 15.5 times forward earnings, but only has a 6% forward growth rate. GE trades at a discount, mostly due to its ongoing restructuring of its financial division. I believe that when the bad loans are completely worked out of the balance sheet, GE Capital will be a very profitable business once again.
The bottom line
To sum it up, as far as diversification goes, it’s difficult to beat GE. An investment in the company gives you exposure to so many sectors, leaving you with much more capital to invest elsewhere. General Electric Company (NYSE:GE) should provide both income growth and capital appreciation for years to come, thanks to its status as a leader in so many different areas.
The article Like Buying Many Stocks in One! originally appeared on Fool.com and is written by Matthew Frankel.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.
