The industrial conglomerates industry includes major players that operate in several markets and draw a majority of revenue from overseas demand. The current trend is to focus on countries with higher growth potential. So let's take a look at two companies in this sector and see which one is doing better and will become the better investment.
General Electric Co. (GE, Financial) operates as an infrastructure and financial services company worldwide. This company sells products ranging from aircraft engines and gas turbines to consumer appliances, railroad locomotives, medical equipment, business and consumer financing, media content and industrial products.
Strong International Presence
The company is serving customers in more than 100 countries and is one of the largest technology and financial services corporations in the world. More than 50% of total revenue is generated outside the U.S. Sales by region in 2012 were: U.S. 48%, Europe 18%, Pacific Basin 17%, Americas 9% and Middle East and Africa 8%. The firm expects to have “double digit" growth in the coming years in countries like China. Few months ago, General Electric announced the joint venture with China XD Electric Co., which is one of the world’s biggest transmission equipment makers.
The Largest Power Agreement
Energy demand in Algeria is estimated to grow by 14% annually in the upcoming years, so the firm decided to supply that country with power generation equipment, signing three contracts to sell about $2.7 billion from a unit of Sonelgaz, Algeria’s national electricity and gas company.
Valuation
In terms of valuation, the stock sells at a trailing P/E of 15.6x, trading at a discount compared to an average of 20.4x for the industry. Analysts’ expectations imply a forward P/E of 15.21. To use another metric, its price-to-book ratio of 2.2x indicates a premium versus the industry average of 1.51x and the price-to-sales ratio of 1.94x is above the industry average of 0.9x.
50 Steps to Improve Margins
Carlisle Companies Incorporated (CSL, Financial) operates as a diversified manufacturing company in the U.S. and internationally. The company is a diversified manufacturer of rubber roofing and insulation, small tires and wheels, heavy duty braking systems, foodservice plastics and specialty wire.
Small Businesses
The firm has purchased nearly 50 small companies over the past 15 years, adding them to its existing operations. Additionally, Carlisle plans to increase production in China, as well as in India and Eastern Europe.
Stock Is Up!
In one year the stock has a rise of nearly 36% which helped drive it to a level which is relatively expensive compared to the rest of its industry. Its P/E multiple, on a trailing-12 month basis, is 25 and the forward P/E multiple is 17.78. The current dividend yield is 1.15%, which will not protect the purchasing power.
Finally, I always like to see of one of the most important financial ratios applying to stockholders, the best measure of performance for a firm's management: the return on equity.
Looking at the table we can see that both companies show good ratios. It is very important to understand this metric before investing in a high-growth company, so let´s take a look at the following graph that shows the evolution of the ratio in the last 10 years.
Final Comment
Emerging markets appear to be targeted by both companies to increase their sales volume. While both are targeting the right areas, I think General Electric has much more important growth plans.
I am convinced that the investment in General Electric is justified and hedge fund gurus such as Ray Dalio, Jim Simons, Paul Tudor Jones, Steven Cohen and Mario Gabelli like the stock, as they added it to their portfolios.
Disclosure: Victor Selva holds no position in any stocks mentioned.
General Electric Co. (GE, Financial) operates as an infrastructure and financial services company worldwide. This company sells products ranging from aircraft engines and gas turbines to consumer appliances, railroad locomotives, medical equipment, business and consumer financing, media content and industrial products.
Strong International Presence
The company is serving customers in more than 100 countries and is one of the largest technology and financial services corporations in the world. More than 50% of total revenue is generated outside the U.S. Sales by region in 2012 were: U.S. 48%, Europe 18%, Pacific Basin 17%, Americas 9% and Middle East and Africa 8%. The firm expects to have “double digit" growth in the coming years in countries like China. Few months ago, General Electric announced the joint venture with China XD Electric Co., which is one of the world’s biggest transmission equipment makers.
The Largest Power Agreement
Energy demand in Algeria is estimated to grow by 14% annually in the upcoming years, so the firm decided to supply that country with power generation equipment, signing three contracts to sell about $2.7 billion from a unit of Sonelgaz, Algeria’s national electricity and gas company.
Valuation
In terms of valuation, the stock sells at a trailing P/E of 15.6x, trading at a discount compared to an average of 20.4x for the industry. Analysts’ expectations imply a forward P/E of 15.21. To use another metric, its price-to-book ratio of 2.2x indicates a premium versus the industry average of 1.51x and the price-to-sales ratio of 1.94x is above the industry average of 0.9x.
50 Steps to Improve Margins
Carlisle Companies Incorporated (CSL, Financial) operates as a diversified manufacturing company in the U.S. and internationally. The company is a diversified manufacturer of rubber roofing and insulation, small tires and wheels, heavy duty braking systems, foodservice plastics and specialty wire.
Small Businesses
The firm has purchased nearly 50 small companies over the past 15 years, adding them to its existing operations. Additionally, Carlisle plans to increase production in China, as well as in India and Eastern Europe.
Stock Is Up!
In one year the stock has a rise of nearly 36% which helped drive it to a level which is relatively expensive compared to the rest of its industry. Its P/E multiple, on a trailing-12 month basis, is 25 and the forward P/E multiple is 17.78. The current dividend yield is 1.15%, which will not protect the purchasing power.
Finally, I always like to see of one of the most important financial ratios applying to stockholders, the best measure of performance for a firm's management: the return on equity.
| Company | ROE | Compared to Industry Mean (=6.4) |
| General Electric | 11.1 | Above |
| Carlisle | 15.1 | Above |
Looking at the table we can see that both companies show good ratios. It is very important to understand this metric before investing in a high-growth company, so let´s take a look at the following graph that shows the evolution of the ratio in the last 10 years.
Final Comment
Emerging markets appear to be targeted by both companies to increase their sales volume. While both are targeting the right areas, I think General Electric has much more important growth plans.
I am convinced that the investment in General Electric is justified and hedge fund gurus such as Ray Dalio, Jim Simons, Paul Tudor Jones, Steven Cohen and Mario Gabelli like the stock, as they added it to their portfolios.
Disclosure: Victor Selva holds no position in any stocks mentioned.
