General Electric Company (GE), Lufkin Industries, Inc. (LUFK): A Sweet Artificial Lift Deal for Both Parties

It seems like Lufkin Industries, Inc. (NASDAQ:LUFK) deserves a higher valuation than Weatherford due to Lufkin’s higher profitability. Lufkin generates a higher operating margin at 12%, while Weatherford’s operating margin is only 7.6%. While Lufkin produces around 7.4% return on invested capital, Weatherford International Ltd (NYSE:WFT) is generating losses. Thus, its return on invested capital is negative at more than 7%. Lufkin is also less leveraged than Weatherford. Weatherford’s debt/equity ratio is 0.8, whereas Lufkin’s debt/equity ratio is only 0.4.

General Electric Company (NYSE:GE) will keep making acquisitions

General Electric has been on a buying spree, backing by its huge cash pile of nearly $126 billion. The big corporation seems to focus on the oil/gas sector. In October 2010, it bought Dresser, an oilfield equipment maker, for around $3 billion. Two months later, it agreed to acquire Wellstream, a manufacturer of flexible pipeline systems for the oil & gas industry at a cost of $1.3 billion. In 2011, General Electric Company (NYSE:GE) also purchased the oil/gas extraction unit of John Wood for around $2.8 billion. Even with a hefty valuation, investors still get a sweet 3.3% dividend yield from General Electric Company (NYSE:GE) at its current price.

My Foolish take

Both Lufkin Industries, Inc. (NASDAQ:LUFK) and General Electric Company (NYSE:GE) investors should celebrate. Lufkin investors could get out at a double-digit EV multiple while GE could buy Lufkin at a much lower valuation than its own valuation. Indeed, General Electric could be considered a long-term holding for long-term and income investors.

Anh HOANG has no position in any stocks mentioned. The Motley Fool owns shares of General Electric Company.