Top 64%
SO, CAT makes the most money that they have ever made, according to their latest filing. Why? They sell stuff that makes infrastructure. And infrastructure is a good business in the developing world. On a recent Bloomberg interview, the CAT CEO admitted that the "Western" companies (and Japan) are shrinking in terms of their infrastructure investments, but that emerging countries and companies located therein continue to buy CAT products and that for the first time those entities in the developing world are able to continue their investments (i.e. the money isn't coming from some single, non-repeatable windfall). So, GE shares have been beaten up or in the doldrums lately and Immelt is in the prcoess of rebalancing the portfolio in response. I will diverge for a second, but hang with me: my opinion is that I don't agree with a long term strategy of selling lighting (because it produces 15% net margin, more than mother GE), but appliances maybe. However, in the short term you will probably end up with an unchanged GE share, but new shares in the new appliances/lighting company, which will make money for shareholders. But at the same time, GE also participates in the global intrafstructure market (see latest GE re-organization to see how). So, in the next year shareholders benefit from the appliance/lighting spinoff and in the long term from the exposure to infrastructure if you believe that CAT is a leading indicator on the "new" rebalanced GE. As long as GE shareholders don't get hurt too badly from the lighting sell-off at GE, GE shares ought to be a good investment over a 1-year+ time horizon. What do you think?
Top 1%
guliamo
Jul 27 at 8:51 ET
I think you make a lot of good points, but here's an idea: Instead of waiting around for GE to balance it's act correctly (and I agree it will be going nowhere for a while) just buy ABB.
They do all the good stuff that GE does without owning a light bulb factory and a darn TV channel. ABB are also Swiss, so they can do business anywhere... try getting an American company to get a contract almost anywhere in the 3rd world.. you will find uncle Sam isn't very popular there.. Add to this a nice anti dollar hedge in ABB's majority income of Swiis Franc / Euro
Top 96%
Imbythelake
Jul 30 at 3:33 ET
Well....All the news I've been catching lately on GE has been nothing but positive, especially since I did my little doldrum bit. Couple plans for big power plants, joint partnerships in the middle east, sale of european financial arms...
Now as far as ABB goes, I must profess ignorance on the finer details of their operations, but doesn't the falling dollar make importing american industry more favorable? I'd imagine cost will still continue to weigh importantly on the foreign customer's mind.
I personally LOVE GE's current valuation, excellent dividend, and historically low price following the Q1 Smack Down. Not to mention some genuinely useful "green-tech" rolling out of its industrial arm.
Gotta disagree again Guilamo ;)
Top 1%
guliamo
Jul 30 at 1:32 ET
hehe.. hi IBT... good thing I thrive on conflict :)
i think GE is about as green as an orange.. but their PR is doing quite a job.. i'm not arguing the companies fundamentals as you have done much research on this.
My natural fear of this investment comes from the fact that whenever companies sell off departments all the skeletons start falling out.. and financial reports get re-written, usually that's bad news for stock price.
I suppose everyone has a different comfort zone - one likes a conglomerate thinking his risk is spread, others, like myself, find it hard to understand the focus and see where future growth is coming from.
GE is one of the biggest companies on earth and for me, it's a matter of not being able to see the forest from the trees.
Top 3%
BenGraham
Jul 31 at 11:33 ET
I agree with the thesis on CAT, and the price seems reasonable.
I looked at GE a while back, but had trouble putting a dollar value on it, and decided to leave it to the analysts. In the long term, suspect we might see GE return to its roots as an energy company, as technologies for transforming solar and wind energy to electricity become more efficient and cost competitive with petroleum.
ABB is certainly putting up impressive numbers. It's hard to argue with a 38% ROE.