Strategic Moves That could See General Electric Increase its Growth
Muhammad is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
General Electric (NYSE: GE) is one of the most influential corporations in the United States due to the services it offers. Having its hand in not only the energy infrastructure but also financial services, General Electric has indeed left its peers in the rear view mirror in terms of both growth and development.
This has, however, not been enough to satisfy the multi-billion-dollar institution, as it has put in place more strategies that will ensure its continued growth. Despite the fact that there have been a couple of glitches along its road to further growth, I’m sure that most, if not all shareholders, remain firm in their steadfast belief in this corporation.
One such glitch that has had General Electric’s usual critics in frenzy is the recent recall of about 1.3 million dishwashers. This recall, announced by the Consumer Product Safety Commission, has undoubtedly come as a shock to many. This can be attributed to the fact that quite a number of people get most of their home appliances from General Electric. The recalled dishwashers apparently had a defect in their heating system that could pose a fire hazard. The good news for General Electric is that although there have been seven reports of fire arising from the defective dishwashers, there have been no injuries reported. Whether this will cause a negative impact on General Electric’s share price remains to be seen since its share price still holds steady at about $21.
The manner in which this situation has been handled has been very reassuring to me and has shown that General Electric is always ready to correct any mistake on its part, thereby keeping competition from other electrical appliances makers such as Philips Electronics (NYSE: PHG), in check. This is especially important since Philips exhibited strong signs of positive growth in this year’s second quarter by beating analysts’ profit estimates and has been keen on expanding its presence into Africa.
The acquisition of Naxys
The recent announcement by General Electric on its intended acquisition of Naxys, a Norwa- based supplier of subsea leak detection and condition monitoring sensors, should be noted by investors. This acquisition will serve to further expand General Electric’s measurement and control business while at the same time enhancing its presence in Norway. The move will not only be beneficial to General Electric but also to Naxys, as stated by Brian Palmer, the VP of GE Energy. Naxys will be able to offer its solutions to a greater number of clients on a global level since it will have about 40 facilities spread over 25 countries. In the case of this acquisition going through without a hitch, General Electric will have widened the gap between their condition monitoring business and that of rivals such as Caterpillar (NYSE: CAT) and even Siemens AG (NYSE: SI). Caterpillar has proven a worthy competitor as can be seen from its presence in numerous countries across the globe. Its earnings per share have been consistently on the rise much like its annual revenue was over $60 billion compared to General Electric’s drop in the last three years. Siemens is also a force to be reckoned with since it has a stake in many sectors such as healthcare and infrastructure unlike General Electric whose main business is in energy production. This means that Siemens has the most chances of reaching a far greater consumer base.
Splitting energy business into three separate entities
The financial world was treated to a surprise when General Electric announced that it would be splitting its energy business into three parts. General Electric Energy will cease its functions most probably by the end of the fourth quarter of 2012, and in its place will be GE Energy Management, GE Power and Water, and GE Oil and Gas.
This has been reported by analysts as a sure sign that the world leader in energy production and distribution expects further growth. This move has therefore gone to ensure that the subsequent growth is effectively managed with no hitches. United Technologies (NYSE: UTX), another leading provider of energy solutions, will therefore have to up its game should it want to catch up to General Electric. It is also important to note that United Technologies is the largest industrial equipment maker which makes it a potential threat to General Electric in terms of sheer potential for revenue gain. With combined revenue of about $50 billion expected this year alone from the three businesses, it is safe to assume that General Electric is one of the best investments that one could make.
With reports also indicating that General Electric is in talks with Hitachi to set up a joint venture in the creation of nuclear power, its future looks exceedingly bright. This means that General Electric will be able to tap a larger nuclear power consumer base and through Hitachi’s experience in designing and building nuclear reactors, the venture is bound to be a success. In summary, General Electric is one of those ventures that I recommend for investing in since it has proven its worth to shareholders time and time again. Its books are well balanced and it shows a high aptitude for growth, making it a worthwhile investment.
muhammadbazil owns shares of Caterpillar. 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.