High Quality Conglomerates Showing Great Value
Brian is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
As the market continues to be volatile, many investors are left wondering where we can find the right balance of having some security and growth. Obviously, bonds, savings account, and/or certificates of deposits don’t look like a nice option when we see they give a negative real rate of return. Commodities are extremely volatile and real estate continues to be depressed. However, investing in diversified companies, such as these two below, should provide returns that outperform the market.
United Technologies Corporation (NYSE: UTX) provides technology products and services to the building systems and aerospace industries worldwide. This diversified Dow component has an excellent track record and fortunately for investors looks to be on sale. With just a 13x trailing and forward Price/Earnings, just over 1.1x Price/Sales and Enterprise Value/Sales, nice return on assets of 9% and return on equity of 22%, strong free-cash-flow this past year of $5 billion, and consistently growing 2.6% dividend yield, I think UTX is a great buy for 2012.
General Electric Company (NYSE: GE) operates as a technology, service, and finance company worldwide. GE is simply a behemoth and has its hands in many different industries. It also has the nice distinction of the longest running stock in the Dow Index ever since it was added in 1907 and currently looks cheap. Trading at just a 14x trailing Price/Earnings, 12x forward Price/Earnings, 1x price-to-expected-growth, very strong free-cash-flow this past year in excess of $26 billion, and recently raised yet again 3.7% dividend yield, I believe makes GE a buy. Moreover, it looks to have largely overcome the troubles it was having with GE Capital back in the 2008-2009 financial turmoil and more focused on streamlining their existing, very profitable businesses.
Splitting a position between these two high quality companies I believe will lead to outsized returns.
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