United Technologies Corporation (UTX), General Electric Company (GE) or Neither: Who’s the Best Conglomerate to Invest In?

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Although one of its smaller segments, healthcare (17% of 2012 revenues) is expected to be one of its fastest growing. This segment includes hearing instruments, imaging systems, therapy equipment and entire intensive care units. The big driver for this segment will be Siemens AG (ADR) (NYSE:SI)’ access to emerging markets, where healthcare is becoming an increasingly important topic. 

The rest

A couple of other major diversified-products companies include United Technologies Corporation (NYSE:UTX) and 3M Co (NYSE:MMM). However, I still think that GE and Siemens are better industry picks. United Technologies is known for its high-end tech products for the building systems and aerospace industries. The one downside to this company is its overexposure and over-reliance on the aerospace and construction industries. This makes the company highly dependent on the U.S. government’s budget allocation for defense. What’s more is that the company has increased its exposure to the aerospace industry with its 2012 acquisition of Goodrich and majority ownership in the International Aero Engines.

3M Co (NYSE:MMM) is a major industrially-diversified products company; however, it has less exposure to some of the rapidly growing industries, compared to GE and Siemens. 3M derived over 33% of its 2012 revenue from tapes and non-woven abrasives for the auto, marine and aircraft industry. Its other major segment, consumer and office, is 15% of revenue and is heavily tied to discretionary office spending and home improvement. Although I think that GE and Siemens are better positioned than 3M Co (NYSE:MMM) for the time being, this company is definitely worth keeping an eye on. The company has a healthcare segment (18% of revenues) that is heavily invested in the drug delivery and infection prevention areas, two potential areas for high growth.

Don’t be fooled

All of these companies have an impressively diverse stream of revenues that allow them to trade with relatively low volatility given their insulation from broad economic swings. But why do I like GE and Siemens the most? Well General Electric Company (NYSE:GE) has one of the lowest betas among bellwether companies and Siemens has impressive international exposure, but it’s more than just that; digging a bit deeper, it appears that GE and Siemens are the cheapest, but they also pay the highest dividend yields.

Price to earnings Dividend yield
GE 17 3.2%
Honeywell 20 2.2%
United Tech 18 2.3%
Siemens 15 3.6%
3M 17 2.4%

What makes Siemens even more compelling is the fact that its balance sheet is one of the top among the five companies, with a debt ratio of only 19%, compared to GE’s 61%. I think either GE or Siemens are great plays on the broader economy and each pay a solid dividend to investors.

Marshall Hargrave has no position in any stocks mentioned. The Motley Fool recommends 3M. The Motley Fool owns shares of General Electric Company.

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