General Electric (GE)

She likes this and likes industrials in general a lot, because we are in the midst of a business cycle maturing. In terms of the midterm of the business cycle, industrials do well. That is because business spending picks up.

Industrials had been poor performers this summer. Have underperformed the markets quite aggressively. Chart is showing a series of lower highs, so it is not too favourable over the near-term. Industrials do not perform well over the next 3 weeks. You want to buy industrials more towards the end of October but for this one specifically, from January into April.

Has lagged because of high exposure to financial services. They are slowly deemphasizing them in favour of energy and healthcare. They want to streamline the company to where profit margins and growth are better. Likes it longer term and is keeping it.

General Electric (GE-N) or United Technologies (UTX-N)? In terms of a structured business plan, UTX is a little further ahead. However, for the past 10-15 years, GE has been quietly reorganizing and making good strides. Reducing their exposure to the financial side which cause them so much trouble in 2008. They are also trying to get out of the appliance side. This would leave them as a true industrial. (See Past Picks.)

(A Top Pick Aug 20/13. Up 14.81%.) (See comments under GE-N.)

GE is the economy because they touch so many parts of it, although they are getting out of certain areas. GE has been trending down this year while the DOW has been trending upwards.

General Electric (GE-N) or United Technologies (UTX-N)? This is an extremely well-run company. Even though the stock has performed poorly over the last many years, the new management has really transformed this company making it a more broadly diversified company and less reliant on financial services. He would love to see this pullback because he feels it is a really well-run, well diversified business, with huge free cash flow growth potential and with a healthy dividend. This would be his preference. Wait for a better entry point.

Has been critical of this company over the last several years because they had been given a very high multiple relative to other companies in the sector, for several reasons. They were able to grow by acquisition and made a lot of good ones, but that was really halted when they tried to buy Honeywell. Also, a lot of growth came from GE Capital, which had a very, very high return on equity. That was a very chunky part of the overall business. Have done a good job of restructuring, but you are not going to see the multiple that you saw many years ago. They have also gone into more highly cyclical areas, which makes it less likely that you are going to see multiple expansion. Has a good yield and not very expensive.

This continues to be a work in progress. Everybody was in love with Jack Welsh and what he did with GE, until what he did wasn’t so good. Their big financial exposure in 2008-2009 really hurt the company. To undo this is a long, slow process. He likes the core businesses and that they are trying to lessen their financial exposure. This is a good, long term hold.

This is getting expensive from his Fair Market Value calculations. Has a target of $28-$29, which would carry it up to about 2X Book Value, which is all that the market is going to give you. This is a tired conglomerate. When that happens, the conglomerate starts breaking up and releases all kinds of phenomenal value.

He has been disappointed in it. It is a proxy on industrial America and performed quite badly. He sold it earlier in the year. He prefers chemicals. He would move on to one such as Dow Chemical.

Likes the industrial space in general for the economic pick up. Companies that are in the turbine and power generation space would do quite well. Trading at 14X earnings with probably a 10% earnings growth rate.

Likes this. Going back to its industrial roots means that you’ve got growth. You probably get a higher multiple because the market would then like it.

In the process of streamlining its business. They are trying to parcel out the financial arm of the business. This helps them to hone in on what is really doing well for them, the industrial front, jet engine, power generation, etc. Have their hand in so many different areas. If the biggest growth component is on the industrial front, he would probably look to a company that is a little more honed in on that space such as United Technologies (UTX-N).

The ultimate diversified conglomerate. A nice stable business that is going to give you low, single-digit total returns from an earnings growth perspective. The multiple of 15X is not rich. Always trades at a discount just because it is a large conglomerate. Recently got permission from the French government to bid for their power and grid business. This will be done in 3 joint ventures, so it will be less of a capital outlay and de-risks the initial investment. Dividend is going to continue to grow at mid-single digit levels.