Will GE's Environmental Policies Hurt Its Stock?
Maxwell is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
There is a problem going forward for General Electric (NYSE: GE), and that problem is consistency. It seems that GE is very dependent on the position of markets, such the S&P 500. As a matter of fact, GE is one of the most correlated stocks to the S&P 500. The reason being, is that GE does a little bit of everything. It takes part in every sector of the economy. This is not necessarily bad for the company, it just means that it had better hope that the market improves in the near future. Of course, the company can extend its growth possibility by reaching out to new and more diverse sectors.
One example of GE reaching out is a recent agreement that was made between the U.S. Environmental Protection Agency (EPA), GE, and SI Group. The goal of this agreement is "to collect and properly dispose of contaminated ground water and liquid leaching from the Dewey Loeffel landfill that is threatening several nearby drinking water wells." The liquid that is coming from the landfill and the ground water are contaminated with volatile organic compounds. When digested, these compounds can cause cancer. The damage that is caused by exposure depends on factors like the level that people are exposed to and how long they are exposed.
This project began with an upfront payment of $800,000. Going forward, the expenses will come from reimbursing the EPA for certain costs associated with the work. The waste will be collected on site and will then be moved to a treatment plant that will be built adjacent to the landfill. Until the time when that is ready to go, the waste will need to be transported to a location off site. The EPA Regional Administrator Judith A. Enck feels that "treating the contaminated ground water and liquid at the site is an effective way to protect people's drinking water wells while the EPA investigation of the site continues."
The investigation began when the site was listed on the EPA's Superfund National Priorities List of the country's most hazardous sites. The toxic substances, including polychlorinated biphenyls (PCBS), that contaminate it have slowly found their way into the ground water, leading into nearby streams and the Nassau Lake. GE hopes to clear up this toxic wasteland with this partnership.
Another bit of environmental activism that GE is partaking in has recently seen some strange backlash. Hundreds of genetically altered trees were destroyed by environmental activists at GE's Scion work site in New Zealand. The police are investigating this odd bit of vandalism. Curiously enough, this is not the first time that this sort of thing has happened at this site. In 2008, a similar event occurred, disrupting a major experiment.
In order to get to these trees the people behind the attack, which occurred over Easter weekend, had to go through many obstacles. The trees were protected by two fences, one of which they had to tunnel underneath. Their crime has destroyed years of work, partly funded by the taxpayers. It has also cost Scion at least $400,000. The damages will be minimal to GE financially, but the bad press may hurt more. For a company that is trying to become ecologically involved, GE wants to present a good face moving forward.
Scion Chief executive Dr. Warren Parker called this a blatant act of vandalism. He said "The field trial was approved under one of the strictest regulatory regimes in the world, and our team has fully complied with the containment controls. Despite this, our research opponents were determined to stop us and used criminal means to do so." Claire Bleakley, the president of GE-Free New Zealand understands completely why people would want to commit such an act. According to her the act was not one of vandalism. She explains it away by stating that Scion's research was "an act of ridiculousness."
All signs are that the trees will be replanted and the research will be redone and finished, but this has dealt a significant blow to the project. The project consisted of two experiments. One was testing herbicide resistance and the other was looking at reproductive development. The project was in its early stages, with most of the trees standing less than one meter tall, and it was expected to run for another two or three years. Despite the infancy of the experiments and the expectation that they will be restarted, scientists are still considering this a huge setback.
On a lighter note, Marriott International (NYSE: MAR) recently purchased and installed GE Lighting LED bulbs at its headquarters in Bethesda, Maryland. GE replaced 1,000 65-watt bulbs with 7-watt LED PAR20 lamps in all of the hallways. It also installed a completely new outdoor security system that will be much more efficient and will save Marriott a large sum of money moving forward. This turned out to be quite a good deal for both parties involved and, like many things that GE has been doing lately, it is good for the environment.
GE is seeing some increased competition in the locomotive market from its competitor Caterpillar (NYSE: CAT). Caterpillar is currently testing new robots that will help out with welding together 200-ton train locomotives. The head of Caterpillar's railroad equipment business, William Ainsworth, believes that it will be "the most efficient locomotive-manufacturing plant in the world." Caterpillar is hoping to make up some ground on GE in the locomotive market. GE is also gearing up production. It is maintaining its main factory in Erie, Pennsylvania while adding another plant in Fort Worth, Texas. I have a feeling that GE will stay on top going forward. I can't see Caterpillar overtaking it anytime soon.
I am more worried about its competitor Siemens (NYSE: SI), as it continues to invest in alternative energy sources. It has won several contracts internationally, lending the company a large bit of credibility in the alternative resources industry, and making it a top stock play for experts. ABB (NYSE: ABB) has also won several large wind energy contracts in Europe and Asia, and has an established reputation as a leading "cleantech" company.
The competition begs the question of whether GE is arriving to the game too late. It's very possible, in my opinion, that its efforts to establish itself as an environmentally friendly company may not reach the levels of Siemens or ABB. As I said at the beginning of the article, GE's price relies too heavily on consumer indexes, so it needs to invest in new and booming sectors. Alternative energy is certainly one of them, and so the question remains of whether GE can reach that plateau. If it can, expect a rise. If it can't, expect it to remain tied to the American economy at large and the little growth potential that it has shown recently.
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