This past week, two highly-respected investment publications opined that this stock is a top turnaround play. Barron’s touted that there is “hope, at last” in this name, even though its stock has fallen by more than 50% in the past decade to trail the S&P 500 and a number of archrivals badly. In this same period, the market is about flat, while rivals have returned between 75% and 150%.

The Financial Times offered an analysis that was a bit more skeptical, but still concluded the CEO is making a big bet on “fresh growth” that relies on beefing up sales to emerging markets, reemphasizing key divisions that focus on infrastructure, and returning to research and development to drive innovation in the coming decade.

Those statements are all well and good, but the historical numbers show that General Electric (NYSE: GE) has lost its way and needs a turnaround to return to the growth heyday it experienced while under the fearless leadership of Jack Welch. The truth is that current CEO Jeff Immelt has had an uphill battle since taking the helm in 2001, as Welch saddled him with underperforming insurance and plastics divisions, which have since been sold off. GE is also badly lagging in emerging markets (the FT article described its growth as “disappointing”) and has sent its vice chairman to Asia to beef up capabilities in the fast-growing BRIC economies of India and China.   

Additionally, GE Capital, GE’s massive finance arm, was a major profit driver under Welch, but it nearly ruined the company during the financial crisis. Back in 2007, GE Capital accounted for 55% of net income. That share fell to 13% in 2009. Immelt has a goal to limit GE Capital to no more than 40% of profits going forward, though it only recovered to 28% of profits in 2010, so it has some way to reach that level.

GE will inevitably turn around its operations at some point, but there is no need for investors to wait for the company to find its way. A number of rivals are already firmly positioned in faster-growing overseas markets and have shown impressive operating consistency in the past decade, while GE has struggled to unwind underperforming businesses and shift from survival to expansion mode following the credit crisis. Asia is important for infrastructure firms like GE, given it accounts for half of the world’s population and strong economic growth is creating significant demand for buildings, roads, airports and energy facilities to keep up with all of this growth.

But last year, Asia only accounted for a small percentage of GE’s total sales — 14%. In contrast, rival 3M (NYSE: MMM), which focuses on an extremely wide array of industrial goods and products, including Scotch Tape and Filtrete air filters, counted on Asia for 31% of sales in 2010. German conglomerate and archrival Siemens (NYSE: SI) counted on Asia for just over 13% of sales, but is much more globally diversified, as the United States accounted for only 21% of sales. GE’s U.S. sales were 47% of last year’s total. Finally, 15% of United Technologies’ (NYSE: UTX) sales stemmed from Asia in 2010, while 47% of sales came from overseas. United Tech possesses world-class businesses, including Otis elevators and Pratt and Whitney aircraft engines and gas turbines.

GE’s rivals have also been more consistent and focused on growing industrial operations. Take a look at the table below.   



As the three-year figures demonstrate, industrial firms in general faced an uphill battle during the recession. However, GE was the worst-hit, while Siemens, United Technologies and 3M all managed to keep profit growth positive in light of sales struggles. This outperformance is even more noticeable during the past five years as GE’s profits plummeted more than 7% annually while all three rivals managed to post very respectable annual earnings growth. This is a key reason their share prices have done well and are beating the market and GE handily.

Both United Tech and 3M stand out for their stellar consistency during the past decade. They have been able to leverage mid-to high single-digit sales growth into about 10% earnings growth. Siemens had its own struggles earlier in the decade due to major bribery allegations, but has since cleaned house and seen rapid profit growth during the past five years. 

Action to Take –> GE may indeed see a turnaround, but at a forward price-to-earnings (P/E) ratio of 15.4, I don’t like the risk/reward tradeoff. United Tech trades at a slightly higher forward P/E of 15.9, but it deserves a premium given its consistent results during the past decade and through the credit crisis. It is also has kept its stellar reputation intact and is strongly exposed to Asia.

3M trades at a more reasonable forward P/E of 15 and has the highest exposure to Asia. It also stands out for its consistency. Siemens trades for 14.6 times, making it the most reasonably valued from a forward earnings perspective. I like Siemens’ international growth prospects, given it is headquartered in Germany and its five-year track record is the best of the bunch in terms of double-digit earnings growth. Any of these three companies would likely be the smarter bet for investors.