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Friday, October 06, 2006

Industry Contrasts: GE and United Technologies (GE)(UTX)

GE really has no rival in the US conglomerate space. With annual revenue of $150 billion and assets in entertainment, financial service, medical products and industrial and infrastructure services, no other company can match its portfolio. This, of course, has been the knock against the company as well. It is viewed as too broad and complex to enjoy the "synergies" that some multi-division comapanies have. Due to that, the stock actually trade below where it was five years ago, a point that is made by the press almost daily. Over the period, the stock has dropped from about $40 to $35.

Although United Technologies is not a conglomerate of GE's scale, it does have revenue of $43 billion and operates in businesses as diverse as elevators, aircraft, heating and cooling systems, airplane engines, and power generation.

Over the last five years, UTX has clearly been viewed as the better investment, by a huge margin. United Technologies' stock is up about 140% over that period, while GE's is down about 5%.

The relative stock prices changes in the two companies have begun to change. Over the last three months, GE's stock has risen over 8% while UTX is only up 3%. Has Wall St.'s view of the companies begun to change?

It may be as simple as the market believing that GE finally gets it and is beginning to streamline its huge portfolio. The company sold its silicon and quartz manufacturing operations to a private equity firm for almost $4 billion.

Almost no one on Wall St. believes that GE belongs in the entertainment and news business. Yet, the company owns NBC Universal. Rumors that the company may be spun out may have helped GE's stock as has speculation that the network may do better in the ratings this year. Either way, the market seems to think that GE will not stand pat with its current line-up of businesses.

Douglas A. McIntyre can be reached at He does not own securities in companies that he writes about.

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