When investing, one of the most important things to do is to diversify your holdings. The theory says that having exposure to many sectors will provide you with a certain level of safety: that is, when certain sectors are down, others will be up. One of my favorite diversification plays, General Electric Company (NYSE:GE) adds exposure to six different sectors all by itself, which should put it on the radar of long-term investors.
The many faces of GE
General Electric Company (NYSE:GE), as mentioned before, operates through six distinct segments: Energy Infrastructure, Aviation, Healthcare, Transportation, GE Capital, and Home & Business Solutions. In many ways, you would need to buy at least six other companies to give you the same level of diversification.
Let’s start with the Energy Infrastructure segment, which accounts for 31% of GE’s sales. This includes gas turbines, wind turbines, solar technology, nuclear power plants, and other energy businesses. This would be the equivalent of investing in First Solar, Inc. (NASDAQ:FSLR) or an equivalent.
I wholeheartedly believe in the solar industry over the long term, and there are very few major players like GE who have the resources to make an impact in the sector who already have solar programs. I actually prefer General Electric Company (NYSE:GE) to investing in a pure solar company at this stage in the industry, as it gives a lot of solar exposure without the tremendous volatility of solar stocks.
The Aviation segment accounts for 13% of sales and makes, sells, and services jet and turboprop engines for aircraft for both military and commercial applications. To gain this sort of exposure to aviation, a stock like The Boeing Company (NYSE:BA), or maybe Lockheed Martin Corporation (NYSE:LMT) would do the trick. With increased spending by both government and private enterprises that comes along with the improving economy, the aviation industry in general should benefit tremendously.
The Healthcare segment (13% of sales) consists of a wide variety of medical imaging products, such as MRI machines and X-rays. A company like Hologix would substitute fine for this exposure. However, investing in General Electric Company (NYSE:GE) as opposed to a pure healthcare play wouldn’t be a bad idea. With the constant threat of cuts in government health programs such as Medicare and Medicaid, this industry’s fate is far from certain over the next several years.
The Transportation segment makes locomotives and other transport equipment, similar to CSX Corporation (NYSE:CSX). While this segment only accounts for 4% of GE’s sales, it is still significant exposure to rail transportation. Rail transportation should be another beneficiary of an improved economy. With more infrastructure and construction projects, there are more materials that need to be hauled long-distance.
Home and business solutions
Home and Business Solutions accounts for 8% of GE’s sales and includes perhaps the most well-known of GE’s products, their home appliances such as refrigerators, freezers, etc. This would be similar to an investment in Whirlpool Corporation (NYSE:WHR). Appliance makers are a great way to profit from an improving housing markets. Kitchens are generally the first thing that gets renovated, either by the person trying to sell the home hoping to get a higher price or by the buyer who bought a fixer-upper to rehab.
GE Capital: The “black sheep” of GE
Finally, there is General Electric Company (NYSE:GE) Capital. Although this segment got GE into some trouble during the financial crisis with its exposure to bad mortgages, the majority of GE Capital (which makes up the largest percentage of GE’s revenue – 32%) is a good finance unit. They offer commercial lending, consumer finance, real estate, and aviation financing. This would be like investing in, say, BB&T Corporation (NYSE:BBT), without the depositary side of banking.