A Smart Play On Global Energy Demand
Maxwell 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) has the ability to expend billions of dollars in research to determine where its business units should focus in order to capitalize on limited market opportunities during the downturn. Wisely, the company opted to make expenditures to optimize fuel efficiency in its aviation division, efficiency equipment for delivery of electrical energy, optimization equipment for the oil and gas industry and wastewater treatment technology. It energy solutions include is FlexEfficiency Combined Cycle power to power grids that assist utility companies in managing electricity demand. The company's technology helps to deliver up to a quarter of the world's electricity. Below, I will explain how GE's focus on electricity production will act as a long-term growth catalyst for its stock.
The Future Of Energy
According to the World Nuclear Association, the world will require a much larger energy supply in the next 20 years. Cleanly-generated electricity will lead this demand. Electricity demand is greatly outpacing overall energy use. Electricity demand is predicted to jump 67% from 2010 to 2035. Nuclear power provides nearly 13% of the world's electricity. Nuclear power provides 21% of electricity in "The organization for Economic Co-operation and Development" (OECD) countries.
GE has secured a contract to supply turbo machinery equipment to Petrobras Argenta (NYSE: PZE) for deep water oil production. The equipment was chosen for efficiency, improved performance, emissions control and extended equipment life. The equipment is for floating production and offloading wells in Brazil. The equipment will take in technology from other GE business operations such as power conversion and power and water. GE's oil and gas division has produced the technology that fills trucks with compressed natural gas (CNG). At present, CNG is the only environmental option for large truck operators as electric, hybrid, and liquefied natural gas are still too costly. GE estimates that a truck fleet can save up to 40% in fuel costs and can cut greenhouse gas emissions by 30%. There are currently 15 million vehicles powered by CNG around the world. This is a big growth area for GE. The company's activity in power generation includes wastewater treatment technology that will be used at natural gas fueled combined cycle power plants in Texas. This will be beneficial for Texas as it has been experiencing a drought.
GE's reach extends globally to 140 countries. GE Capital has the ability to commit up to $120 billion to middle market companies, giving them the opportunity to expand and provide employment to communities across the globe. GE's work at home and abroad is aimed at building economies. In the energy sector, it is aimed at providing renewable and clean energy in the home and business markets as well as transportation. GE's jet engines, while running on fossil fuels, are aimed at reducing emissions, and using technological advances to cut fuel costs.
GE's record of reliability, performance, high quality materials and modularization will serve it well in its endeavors in energy and recycling technology. GE's numbers are not spectacular, but solid despite the current economic climate. It has a profit margin of 9.30% and is providing an 11.27% return on equity from all of its diversified businesses. Its quarterly revenue growth is positive at 2.80% and its quarterly earnings growth is 8.3%. Its estimated book value per share is $11.69.
Similar companies are providing a mixed bag of returns. 3M (NYSE: MMM) has a profit margin of 14.89% negative quarterly revenue growth of -0.50%, and quarterly earnings growth of 6.7%. It has provided a 14.36% return in the past year. Monsanto (NYSE: MON) has a profit margin of 16.12%, quarterly revenue growth of 20.5% and quarterly earnings growth of 169%. The stock has provided a 25.27% return in the last year. EI DuPont de Nemours (NYSE: DD) has a profit margin of 7.74% negative quarterly revenue growth of -9.9% and quarterly earnings growth of -97.8%. It has provided a negative return of -.647% in the last year.
GE is not an ideal play on the current economic climate. Expecting big returns from the price activity of the stock is not practical right now. It is a company that is well suited for rapid growth environments. To that end, GE is investing heavily into emerging markets like Brazil to accelerate growth potential in that market. Meanwhile, in more mature economies, where it is not selling high ticket household items, it is engaging in enterprises that will sustain in slow growth and anticipate the needs of the economy, particularly in Texas where it is engaged in wastewater recycling. These elements will prove beneficial in any endeavors it will tackle in other global locations where wastewater recycling and fuel efficiency is an essential part of those economies, Asia and Africa come to mind. GE's stock is well priced at around $21 per share. It is still a great company to own for patient, value investors. GE is one to buy and hold for the long-term.
StockCroc1 has no position in any stocks mentioned. The Motley Fool recommends 3M. The Motley Fool owns shares of General Electric Company. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!