ABB revisited.
Started Aug 17 2008 at 12:05PM (EST) (By guliamo)
I've owned ABB for several years and would like to reiterate some points in it's merit considering the last 3 months where the stock plunged 25%..
ABB provides power and automation technologies to utility and industry customers worldwide. In simple terms these guys build huge turbines and power plants. If Toyota is building a new Robotic plant - ABB will build the robots.
Despite the recent decline It's all good news with ABB as far as I'm concerned. Even though stock value has dropped, ABB is still 10% up in the last troubled year.
ABB's 26% quarterly revenue growth combined with a 33% earnings growth is right where it should be to support future stock value growth. P/E is at 13 - fair enough for this industry.
On the macro level ABB remains best positioned to enjoy business opportunities in China and India. ABB has got only one serious competitor - GE. My opinion of GE is known, I think the company is a mess where as ABB are run like a swiss clock.
Being a Swiss company is especially great for American investors who get a dollar hedge in this position as well.
I think ABB is getting beaten up by the general sentiment that raw material, energy and those who facilitate their use (companies like ABB) have had a run way too long, but ABB doesn't really have anything to do with that. ABB has contracts locked down years in advance and their relation to the sector shouldn't be confused with their business core - serving infrastructure, which will continue it's rapid growth in developing countries.
My favorite stat for ABB is it's return on equity - 38.5% - not to shabby for a 55 billion cap with 115,000 employees.
This means ABB isn't borrowing and is using working capital to grow into new contracts (GE's ROE is half of ABB's). I think return on equity is one of the key ratios to look at these days for any company.
That's my 2 cents, I'll be holding this one for a while.
I would love to hear what my technical friends have to say about the chart..
Thanks.
ABB provides power and automation technologies to utility and industry customers worldwide. In simple terms these guys build huge turbines and power plants. If Toyota is building a new Robotic plant - ABB will build the robots.
Despite the recent decline It's all good news with ABB as far as I'm concerned. Even though stock value has dropped, ABB is still 10% up in the last troubled year.
ABB's 26% quarterly revenue growth combined with a 33% earnings growth is right where it should be to support future stock value growth. P/E is at 13 - fair enough for this industry.
On the macro level ABB remains best positioned to enjoy business opportunities in China and India. ABB has got only one serious competitor - GE. My opinion of GE is known, I think the company is a mess where as ABB are run like a swiss clock.
Being a Swiss company is especially great for American investors who get a dollar hedge in this position as well.
I think ABB is getting beaten up by the general sentiment that raw material, energy and those who facilitate their use (companies like ABB) have had a run way too long, but ABB doesn't really have anything to do with that. ABB has contracts locked down years in advance and their relation to the sector shouldn't be confused with their business core - serving infrastructure, which will continue it's rapid growth in developing countries.
My favorite stat for ABB is it's return on equity - 38.5% - not to shabby for a 55 billion cap with 115,000 employees.
This means ABB isn't borrowing and is using working capital to grow into new contracts (GE's ROE is half of ABB's). I think return on equity is one of the key ratios to look at these days for any company.
That's my 2 cents, I'll be holding this one for a while.
I would love to hear what my technical friends have to say about the chart..
Thanks.
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8 Comments
Top 1%
V4Vendetta
Aug 17 2008 at 12:39PM (EST)
The fundamentals look strong; but a sinking tide lowers all ships.
I would stay away until its bottomed.
Top 2%
KanGuru
Aug 17 2008 at 3:19PM (EST)
I agree with Vendetta - need to wait until we're sure ABB bottomed out, but as it looks could be any day now, so i'm keeping it on my watchlist.
Top 35%
longterminv
Aug 17 2008 at 9:32PM (EST)
My take on GE isn't so marco. It's a bank + an infrastructure company, but the macro forces aren't all that creates value for GE shareholders in the next 12 moths. Basically, I believe that global infrastructure will be strong, as I indicated a month or so ago on July 26th when I discussed CAT as a leading indicator on GE. GE is up 3.58% [Google Finance] compared with ABB's decline of 8.75% [Google Finance, again] since then, but I'm not a short term investor so I say you can take that with a grain of salt. With either ABB or GE (or CAT), you get the infrastructure goodness. GE's got lots of other stuff, too. As an example, I think that GE's next generation jet engine will capture more market and UT's geared turbofan because of lower lifecycle costs. I think that GE's deals with the Mid-East are smart, since those guys have a ton of cash and their stated national ambitions to grow their economies by way of aerospace. GE can help with that and being a close friend of the Governments over there sure does help alot. It's ethical, it's the way things get done over there, and it's smart. GE is also selling a TON of locomotives to China. For those of you who are green, they have several projects in solar and wind. The "green" GE is mostly marketing, though. For those of you who are more real, GE also has projects in clean(er) coal and nuclear, which I personally believe is more real than wind and solar. You may also want to consider that he new ABB CEO was just a direct report of Immelt's.
However, I believe you make money on GE in a different way. In the next year, GE will spin off appliances and lighting. This action will create value for current shareholders because the value of your GE share won't budge and you'll get shares in the new company. I know the guy who has been selected as the new general manager of that spin-off and he is a shark; he is my mom's brother and just the sort you want running a company. It is also helpful to remember that the lighting division alone has a ~15% net margin, which is higher than the parent company. Don’t knock lighting; count the number of light bulbs you can see right now from where you are sitting. . .all of which are consumable. Not a bad biz if you know how to compete there. . .and GE does. Plus, the spin-off will likely keep the GE brand name.
GE is a bank + an infrastructure company. At this point, the markets have discounted the stock to the point that you get the bank practically for free when you buy the stock. I have been of the opinion for several years that the corporate structure didn't add enough value to the various units to justify them being part of the same corporate whole. Now that Immelt is divesting, I think that GE shareholders stand to gain. I'm with you that ABB's more focused emphasis on electrical distribution is interesting, but I just don't think that in the next year they will give more back to the folks that buy their stock then GE will.
Top 1%
DowJonesDave
Aug 18 2008 at 6:10AM (EST)
Wait for it to tick up out of consolidation.
Top 1%
DowJonesDave
Aug 18 2008 at 8:01AM (EST)
I never try to pick a bottom. Wait for it to become apparent.
Top 1%
guliamo
Aug 18 2008 at 8:13AM (EST)
Hi longterm,
Your comment makes perfect sense, but they show that you know the company well and therefore believe in them. I think that is a seperate subject, my point was the fact that ABB was a pure infrustructure play where as Ge is a different play.
My experience with spin off's is that they look better on paper than they do in real life. In forming the new company a lot of hidden debts, old inventory and reminent workforce come up as libilities that need to be sold off or written off...
I apreciate your faith in GE but beg to differ - I think ABB will show better growth over the next 12 months.. let's wait and see :)
Top 35%
longterminv
Aug 18 2008 at 2:33PM (EST)
You're on. :o)
Top 24%
arawak
Aug 18 2008 at 11:01PM (EST)
Interesting comments. I am an ABB investor as well and think their growth potential is solid. Downturns like these are troubling to good companies as V4Vendetta noted but 1) I believe so long as you are not disrupting your investment model too much, buying good companies in recessions is how you increase your long-term returns and 2) even though there are signs of a global slow-down, it is the USA taking it on the chin.
I realize I'm going slightly off-topic but I don't believe in the "great decoupling" in so far as the rest of the world ceases to trade with the US. That written, I do believe the US is in for a soft landing in that its continued dominance in the world economy will reduce day by day as GDP of everyone else slowly catches up. The cheap dollar and alarming fundamentals (public/private debt obligations, primarily) will lead to a continued buying frenzy of American companies. Meanwhile BRIC will continue to haul people out of poverty and will need the services of GE and ABB alike. Between the two and in this instance... I'll go with a foreign specialist like ABB. Good hunting.