Game changer, disruptive, innovative, ahead of the curve — all words and phrases you want to hear about a company in your portfolio. Not terms you generally hear about industrial conglomerates anymore. Probably the last time people said these about General Electric Company (NYSE:GE) was a hundred years ago when Edison’s electricity advances changed modern living in ways even he couldn’t have imagined.
But maybe it’s time to put those words back in the vernacular describing GE today. Since its founding in 1892 GE has its fingers in so many pies it takes a paragraph and five company websites just to describe how many industries it touches. As an infrastructure and financial services company its main divisions are: Power and Water, Oil and Gas, Energy Management, Aviation, Transportation, Home and Business, GE Capital, and Healthcare. GE is the biggest conglomerate in the US but also serves 160 countries.
Why GE is on the move again
With 305,000 employees working to make trains more energy-efficient, drill deeper for oil, detect cancers more accurately, and so much more, General Electric Company (NYSE:GE) should be considered as almost a global economic index fund as it covers financials, housing, transports, healthcare, and aviation. Just as owning Berkshire-Hathaway -B) allows you exposure to insurance, transport, housing, and retail, owning one of these stocks puts you ahead of the curve in diversifying a portfolio. Warren Buffett himself holds GE in his portfolio although it’s only a .02% stake.
The stock is trading at an 18.27 P/E with a 12.76 forward P/E. GE offers a 3.20% yield with a sustainable 50% payout ratio. The stock is up close to 25% over the last year outperforming the S&P 500. In the last week it touched a 52 week high of $23.90.
The company is in the news again (like Apple Inc. (NASDAQ:AAPL) there’s a new news tidbit almost every day. It really isn’t a boring stock.) with the announcement it’s teaming up with the NFL to study concussions and improve diagnosis and treatment in hopes of preventing permanent brain injury.
Also in the news is CEO Jeffrey Immelt’s annual shareholder letter in which he details the company’s plans to return $18 billion this year to shareholders through buybacks and dividends and reiterated the company’s commitment to a high dividend yield.
What’s really driving the stock is the innovation in various divisions that make it an alternative to owning certain individual stocks. In healthcare it’s partnering with the US Department of Veterans Affairs to develop a robot to fetch, sort, and sterilize surgical instruments. Shades of Intuitive Surgical, Inc. (NASDAQ:ISRG) In energy it has partnered with Chesapeake Energy Corporation (NYSE:CHK) in its CNG (compressed natural gas) in a Box system, a compact refueling system. As Immelt wrote in the shareholder letter, “We will lead in the shale gas revolution.”
In transports General Electric Company (NYSE:GE) has the Rail Optimization Solutions to increase efficiency for the railroads. Why buy customer Norfolk Southern Corp. (NYSE:NSC) when you can buy the company that makes money by helping it save money?
Speaking of money Immelt expects GE Capital to return a significant amount of cash to parent GE. With credit cards, middle market loans, home loans, and other financial products a portfolio can fill out its financials allocation as well as covering housing in one fell swoop. Isn’t that better than just buying financial services competitor Citigroup Inc. (NYSE:C)? Don’t forget GE has a strong appliance and lighting segment.