General Electric Company (GE): Why This Stock Could Be a Smart Investment

The Pratt and Whitney Aircraft division has a fairly positive outlook, as the company’s R&D is renowned for working towards developing ground breaking aviation engines. Presently, the company develops F-135 engines for the U.S. Air force; in addition, it is also developing liquid fuel J-2X engines to facilitate NASA’s future plans of space exploration. Going forward, I expect the company to charge a premium on its products resulting in higher EBITDA margins. I believe with strong fundamentals and growing demand for its products, United Technologies Corporation (NYSE:UTX) is a solid investment option.

Within the Healthcare division, General Electric Company (NYSE:GE) competes with Abbott Laboratories (NYSE:ABT). Abbot generates the highest percentage of its revenue through Pharmaceuticals, at around 62%. This is followed by Nutritional and Diagnostics, at around 18% and 12%, respectively. During fiscal 2012, Abbott Laboratories (NYSE:ABT) operated on an EBITDA margin of 44%, however, the diagnostic segment operated on an EBITDA margin of 36%.

According to the valuation offered by Trefis, the diagnostics segment, which competes with GE Healthcare, accounts for 14% of Abbott’s stock price. Going forward, I expect Abbott to benefit hugely from its growing presence in emerging markets such as India, China, and Brazil. Additionally, acquisition of companies such as Starlims Technologies and Ibis Bio sciences will enable it to enhance its presence in a niche space such as molecular diagnostics.

NBCU transaction and future outlook

General Electric Company (NYSE:GE) gained a healthy sum of $18 billion through the sale of its remaining share in NBC Universal. After the sale of its 49% stake, it earned $0.08 per share. It is noteworthy that the cash generated through this transaction will be distributed among shareholders in the form of dividends and share buy backs. During the first quarter, General Electric Company (NYSE:GE) distributed approximately $4 billion through dividends and share repurchases.

Additionally, the company plans to use the surplus cash to initiate operational restructuring for margin expansion. Through various cost cutting initiatives, such as shutting down several high cost yielding plants and reducing the employee count, the company was already successful in cutting down its industrial cost by $200 million during the first quarter of 2013. Moving ahead, the company expects the industrial cost cutting initiative to yield $1 billion in savings by the end of this year.

GE Aviation presently holds a 27% market share in the global aviation industry. With constant innovation that has led to GE Aviation offering more fuel efficient engines, I expect its footprint to grow further in the aviation industry. However, increase in the aviation business will largely depend on the global growth of the aviation industry.

The healthcare division, which includes medical devices and equipment  currently possesses a market share of 6.7%. General Electric is a pioneer in the medical equipment industry with exceptional commitment to innovation through R&D. Emerging economies such as India and China present a huge growth opportunity for the company. The penetration level of healthcare products is extremely low in the emerging markets and thus, I expect the company to increase its global healthcare market share by launching radically innovative products and push its market share to 10% in the future.

I believe the stock has the potential to appreciate going forward, and investors should consider holding GE in their portfolio.

The article Are Tesla and Google Teaming Up? originally appeared on Fool.com.