Ain’t nothing wrong with General Electric (NYSE:GE). It’s a great company, a great stock, a great long-term core position holding for a diversified portfolio. I would never bet against GE over the long haul. However, the fact that GE remains a go-to stock means other interesting opportunities in a similar space might get overlooked. They shouldn’t. They are great buys.
Can you find a more boring company name than United Technologies (NYSE:UTX)? It’s exactly this boring name that I think causes many investors to gloss right over the stock without even considering what it is or what it does, or the fact that it is one of the Dow Industrials. However, like General Electric, it dabbles in many different sectors. These include elevators, heating, ventilating, air conditioning, refrigeration systems, controls, services, and energy-efficient products for residential, commercial, industrial, and transportation applications, electronic security and fire safety products, Pratt & Whitney aviation, Hamilton Sundstrand aerospace products and Sikorsky helicopters.
That’s a lot of stuff. Not that different from GE. And there’s another company that looks much the same. It’s called 3M (NYSE:MMM). Trust me, you use its products on a daily basis: 3M glue sticks, CD-ROMs, Post-It Notes, Scotch Cassette Deck Head Cleaner, Nexcare bandages, Scotch tape, Oxy Carpet Cleaner, O-Cel-O Sponge cloth and Scotch-Brite. Other things you might not use as much but others do: medical and surgical supplies, drug delivery systems and food safety products, computer screen filters, reflective sheeting for transportation safety, commercial graphics sheeting and systems, mobile interactive solutions, personal and commercial protection products, packaging and interconnection devices, and insulating materials.
Also not that different from General Electric. Smaller and not as diversified, but still, it’s not a stretch.
Now let’s look at their respective valuations. United Technologies’ five-year annualized earnings growth is 11.8%. At a stock price of $76, on FY 2011 earnings of $5.48, UTX stock presently trades at a P/E of 14. United Technologies carries $5.4 billion in cash and $9.5 billion in debt. Trailing 12-month free cash flow was $5 billion, and UTX pays a 2.5% dividend.
General Electric’s five-year annualized earnings growth is 15%. At a stock price of $16.74, on FY 2011 earnings of $1.37, GE stock presently trades at a P/E of 12.5. The company has $136 billion in cash and $277 billion in debt. Trailing 12-month free cash flow was $21 billion, and GE pays a 3.7% dividend.
3M’s five-year annualized earnings growth is at 12%. At a stock price of $82, on FY 2011 earnings of $6.28, MMM stock presently trades at a P/E of 13. 3M has $4.52 billion in cash and $4.84 billion in debt. Trailing 12-month cash flow was $3.8 billion, and MMM pays a 2.7% dividend.
The numbers are not that dissimilar, and United Technologies and 3M should be worthy of consideration in your portfolio — possibly in place of General Electric.
As of this writing, Lawrence Meyers did not hold a position in any of the aforementioned stocks.