Investors have long turned to massive conglomerates as a safe investment, with many asking is General Electric or Honeywell a better buy.
Sept. 18, 2021
There are many stalwarts that investors consider when they are trying to build a low-volatility and dividend-producing portfolio. For many years, General Electric (NYSE: GE) was a staple in this regard. However, its struggles in recent times have been a cause of concern for investors. Honeywell International (NASDAQ: HON), on the other hand, has been churning out consistent earnings growth across the board. The question remains: is General Electric a better investment than Honeywell?
General Electric: Bull vs bear arguments
General Electric is one of the longest-running companies in the U.S., but many people are wondering if it is able to stay up to date with the latest developments. It has had a tough few years as numerous pivots did not work out too well. However, its fortunes have been improving somewhat since new management took over in 2018. General Electric has been utilizing the COVID-19 pandemic to undergo some restructuring.
The financial situation now looks a lot better than it did a few years ago. Back in 2017, it generated a loss of $8bn from $118 billion in revenue. For the first two quarters of 2021, total revenue has been $35.4 billion, with profit levels almost reaching $2 billion. There has also been the generation this year of $500 million in cash flow. Therefore, General Electric has become a lot more efficient with its operations.
As the pandemic starts to ease, the General Electric business segments that were most affected are now improving. This includes its aviation segment, with the commercial engine production rate expected to rise this quarter.
One of the areas in which it has been struggling is its renewable energy division. Its wind turbine and wind turbine gigawatts businesses were down significantly in recent times. Its healthcare offering has also been suffering, which is cause for concern as it is its most profitable sector. These struggles are down to resource and labor shortages.
Honeywell: Bull vs bear arguments
Honeywell is a North Carolina-based multinational conglomerate that focuses on four key areas of business. This is aerospace, safety and productivity solutions (SPS), performance materials and technologies (PMT), and building technologies.
It has been performing well in recent times, with its Q2 results coming in above expectations. On the back of this strong performance, the company raised its forecasts for the full-year earnings. Despite the global pandemic, Honeywell has a rock-solid balance sheet, with its free cash flow bypassing the $5 billion mark.
In the most recent quarter, each of the business segments experienced organic growth. With some of this is down to the lackluster 2020 due to the pandemic, it is still a positive sign. The aviation sector is starting to recover, so Honeywell expects a return soon to 2019 numbers in this area of the business.
Honeywell has a reputation for making smart acquisitions. One of its most recent deals saw it buy a majority stake in an up-and-coming quantum computing company Cambridge Quantum, that could start to generate sales of $1 billion in the next few years.
The main drawback of Honeywell is the current price. It appears that a lot of the green shoots around this company have been already priced in and that it could be an expensive buy.
So, which stock is a better buy right now?
With strong earnings growth potential, expanding core business segments, and a sturdy balance sheet, Honeywell certainly commands attention. The main concern is its current price level. However, it certainly looks to be a better buy than General Electric. The latter has been showing signs of getting the show back on the road after a rocky few years, but there is still a huge amount of work that has to be done in order for investors to be confident about its long-term prospects.
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