Caterpillar, General Electric or American Electric Power - Making the Tough Decision
Muhammad is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
As a layman investor, making decisions can sometimes prove to be an uphill task. This is especially so if faced with decisions that bring key players like Caterpillar (NYSE: CAT), General Electric (NYSE: CAT) and American Electric Power (NYSE: AEP) to the table. It is imperative to tread carefully while focusing on utilities. You have to critically analyze each stock and look at its strong points. Then most importantly cross check its lineaments with your primary objectives. Are you looking for growth, income, or both?
American Electric Power is a regular newsmaker
Being one of the big wig power producers in the U.S, American Electric Power is a regular newsmaker. Just recently, the behemoth exclaimed its reputable track record in agility and aggressiveness. Pablo Vegas, the Chief Operating Officer and president of AEP Ohio branch made a clear statement that confirmed AEP’s stand on PUCO’s decision.
PUCO, the Public Utilities Commission of Ohio, came to the conclusion that it would extend the capacity charge. This move will cushion individual utilities and retail energy providers from unfair competition. On the flip side, it will act in the best interests of consumers. AEP Ohio has cited that it is ready to comply with PUCO’s decision.
AEP’s compliance shows that it is an agile and exceedingly aggressive player. It knows how to play its cards well and filter through tough regulations. On an operational basis, AEP still needs to raise the tempo a few notches higher.
When it comes to dividends, incredible would be an understatement. It offers dividends in the ranges of $0.46 - a high figure in the utilities sector. There is, however, one big problem; high dividend payouts usually weigh on growth.
Verdict: AEP is a good investment for an investor looking for income. On growth, it still has some drawbacks and doesn’t exhibit very good prospects at the moment.
General Electric is hoping to make environment GREEN
General Electric is arguably one of the biggest names in the utilities sector. One notable thing about General Electric is its bright outlook on the global front. Currently, there is a bullish slant as the player has made major improvements in the health care niche.
General Electric has struck a deal with Affibody. This deal is geared at yielding incredible breakthroughs in the fight against breast cancer. It is also one of the many breakthroughs that General Electric has made in its health care branch. The utility heavyweight has really cranked up operations in health and currently exhibits exceedingly favorable prospects in this niche.
General Electric has also passed a clear statement on its standpoint on environmental matters. It recently spearheaded a green vehicle showroom and demonstration. It did this through its Eden Prairie unit. In my line of thought, General Electric has a very bright future. This is especially so after analyzing the stock on an operational basis. It knows the areas to exclaim and plainly paints its tact and strategy all over its wall for all to see.
Verdict: It is a very good option for investors looking for growth. When it comes to dividends, it extends a lower payout in the ranges of $0.17.
Caterpillar is wedged on a bearish stretch
Caterpillar personally grasps my attention because of its commendable aggressiveness. It was awarded a 6 year fixed price contract. This contract, awarded by the Defense Logistics Agency, will see Caterpillar provide commercial construction equipment. The $776 million contract was contested by a total of 15 bidders. Caterpillar however outbid the 14 other bidders.
Moving from good to bad, Caterpillar is currently wedged on a bearish stretch. At the end of May, trading was rather slow - terrible for that matter. This has actually been the case for the past few months. The macroeconomic view is also dim and there are growing concerns that the performance may continue plummeting over the next few months.
Caterpillar sold its Bucyrus South African business to Barloworld. This sell, valued at around $115 million, introduces a shred of hope into the picture. It, however, does little to revive prospects at Caterpillar.
Verdict: Not a good buy at the moment. On an operational basis, there is still room for improvement. The dividend payout is however commendable; figures in the ranges of $0.46.
Conclusion and Overall verdict
From the above analysis, it is quite evident that Caterpillar and American Electric Power offer the best dividends. Despite this evident allure, I am inclined towards General Electric. It offers a fairly good dividend and exhibits laudable growth prospects.
A stock that offers less rewarding dividends is known to offer better returns in the long run. This is because it can reinvest a bigger portion of its profit.
Verdict: General Electric is the way to go.
muhammadbazil has no positions in the stocks mentioned above. The Motley Fool has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.