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Forget Baker Hughes, General Electric Company (GE) Stock’s Best Buy-Outs Were a LOT Smaller

The news dominating the General Electric Company (NYSE:GE) is undoubtedly its proposed tied-up with oil services firm Baker Hughes Incorporated (NYSE:BHI). Certainly, that deal is transformative and deserve plenty of attention. In the end, that will make GE a very different company — or two after it splits.

Forget Baker Hughes, General Electric Company (GE) Stock’s Best Buy-Outs Were a LOT Smaller

It very much warrants coverage.

But while the investment world fawns over GE and BHI tying the knot, General Electric was busy making other deals — much smaller deals outside of the world of industrial manufacturing.

GE is quickly becoming one of the strongest and biggest technology stocks out there. Dubbed the industrial internet or smart factories, the company is rapidly becoming one of the biggest players in the burgeoning Internet of Things (IoT) market.

In the end, the concept of smart factories, appliances and other industrial products is really what’s going to drive growth across throughout GE’s future. And that includes anything that happens with Baker Hughes.

GE Creates the Factory of the Future

The last few years have been about transformation at GE. After shedding billions of dollars’ worth of GE Capital and other financial assets, General Electric has gone back to its roots as major industrial manufacturer. Except, there’s a hefty dose of code and programming going along with that focus on industrial manufacturing.

During this whole shuffling of businesses lines, asset sales and transformation, General Electric quietly launched GE Digital. Taking tools that it used during its own internal processes, General Electric created the blueprints for the smart factory of the future. Using its new Predix platform, GE stock now offers a whole suite of products built to combine machines and technology in one hand.

Initially, the suite of products used complex sensor across various pieces of machinery — say a jet engine or conveyor belt — and then software to analyze the billions of bytes worth of data. Looking at all the data generated, it was done to help with maintenance time, operational efficiencies and other cost-saving strategies.

But GE hasn’t stopped there. It has a gone on an IoT buying spree designed to make Predix THE one-stop shop for the industrial internet.

While the market was focused on the BHI merger, it quietly added ShipXpress and asset performance management software firm Meridium. It also purchased Arcam and Concept Laser. It took out Bit Stew — which handles efficient data integration. and its machine leaning AI “natural selection” software is now part of the GE Digital family. Industrial cyber security firm Wurldtech was added.

The latest was a $915 million buyout of ServiceMax. The addition to GE Digital will allow field workers access to data, contracts and other information from anywhere on any device. It brings software as a service (SaaS) into the Predix cloud suite.

None of these acquisitions were big in terms of dollar amounts, but all allow GE to really utilize everything that Predix potentially could offer. Machines and factories, thinking and learning while running more efficiently.

A Monster Opportunity for General Electric Stock

The real opportunity for GE comes down to making money hand over fist with Predix. Despite only being a few years old, GE is already generating plenty of revenues from the software infrastructure suite. This year, General Electric estimates that sales of Predix will hit $7 billion. That’s a billion more than what it earned on the IoT software program during 2015.

The gains are coming from major companies as well. GE just signed mega-utility Exelon Corporation (NYSE:EXC) and India’s Reliance Industries Limited — which wants to use it across its energy, fertilizer, power, healthcare and telecom businesses.

Longer term, Predix should grow to more than $15 billion in annual sales by the time the calendar rolls over to 2020.

And there’s plenty of potential for cross selling and additional revenue drivers. Just bought a new jet engine from GE Aviation? How about buying it already loaded with sensors and year’s trial to our Predix software suite?

That kind of cross-selling and sales pitch will even work with the various oil service products that GE will sell after it snags Baker Hughes. General Electric estimates that a small 1% increase in efficiency could save the oil and gas industry more than $90 billion over a 15 year period.

The fact that it makes the industrial products and sells the software gives it an upper hand against other industrial IoT rivals like Cisco Systems, Inc. (NASDAQ:CSCO).

“Techy” GE Stock Is a Big Buy

In the end, GE is quickly becoming the industrial internet leader with its smart and small buy-outs. The Brilliant Factory and connectivity among machines and industrial processes will be a huge trend in the upcoming decades. General Electric is building on its history for the next industrial revolution, one that will be driven by coding rather than steam and coal.

For investors, the sideways drift of GE stock makes it an incredible buy as its moves with gusto in the next stage of its transformation.

Ultimately, GE Digital will continue to see higher revenues and the high profit margins at the unit will only serve to strengthen GE overall.

As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.

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