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Here's Why You Should Buy Honeywell, Sell General Electric
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The saying “change is the law of nature” stands true for diversified conglomerates, which once took pride in the varied business cycles that helped mitigate operating risks, but are now fast shifting focus to core operations. The concept of ‘bigger is better’ has ceased to gain precedence for these big industrial powerhouses. Rather, most of the major diversified conglomerates have shed their baggage to be nimble and adept to the dynamic macroeconomic environment.
A paradigm shift to the core industrial operations might also have been triggered by the inherent growth prospects of the sector. The Industrial sector has a high positive correlation with the economy and is likely to improve as the economy gradually gathers steam. As focus beats diversity, we take a closer look at two of the industry stalwarts to gauge the underlying metrics in the broader sector.
Price Performance
General Electric Company (GE - Free Report) , which once had undisputed dominance over the sector, has almost completed its massive restructuring initiatives to focus on core industrial operations by divesting most of the financial units under GE Capital. Perhaps the high-growth potential of the Industrial sector and the credit risks associated with the financial businesses had been the most decisive factors behind the initiative.
One of its peers, Honeywell International Inc. (HON - Free Report) , has regularly fine-tuned its portfolio according to evolving market needs. The company has sold about 60 units (accounting for $7 billion in sales) since 2002 and has acquired another 90 companies contributing $14 billion in revenues over the same period.
For the last six-month period, Honeywell clearly outperformed General Electric with an average return of 10.3% compared with the latter’s 1.0%. Also, during this period, Honeywell shares performed better than the Zacks categorized Diversified Operations industry that increased 8.1%.
Our research shows that stocks with a VGM score of ‘A’ or ‘B’, when combined a Zacks Rank #1 (Strong Buy) or #2, offer the best investment opportunities for investors. Consequently, Honeywell appears to be better positioned compared to General Electric with regard to these metrics.
Estimate Revisions
Over the past two months, Honeywell’s current quarter estimates remained steady at 62 cents, while that for the current year have increased by 2 cents to $7.04 per share.
General Electric’s current quarter estimates have decreased significantly from 31 cents to 17 cents during the last two months, while current year estimates fell to $1.63 from $1.65 per share.
To Sum Up
Based on the current scenario, Honeywell seems to have outshined General Electric on all fronts. However, in a major hint of re-conglomeration, General Electric has inked a definitive agreement with Baker Hughes Incorporated to merge its Oil & Gas business with the latter. The partnership aims to arrest the dwindling sales of GE Oil & Gas business by forming an industry leader with an unrivalled mix of service and equipment capabilities. The strategic deal fortifies the beleaguered business to counter competition from rivals like Schlumberger Limited (SLB - Free Report) and Halliburton Company (HAL - Free Report) .
Despite these attempts, Honeywell shares appear well poised to beat the industry and fundamentally strong to withstand risks. Again, Honeywell stands out as a better investment proposition compared to General Electric.
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Here's Why You Should Buy Honeywell, Sell General Electric
The saying “change is the law of nature” stands true for diversified conglomerates, which once took pride in the varied business cycles that helped mitigate operating risks, but are now fast shifting focus to core operations. The concept of ‘bigger is better’ has ceased to gain precedence for these big industrial powerhouses. Rather, most of the major diversified conglomerates have shed their baggage to be nimble and adept to the dynamic macroeconomic environment.
A paradigm shift to the core industrial operations might also have been triggered by the inherent growth prospects of the sector. The Industrial sector has a high positive correlation with the economy and is likely to improve as the economy gradually gathers steam. As focus beats diversity, we take a closer look at two of the industry stalwarts to gauge the underlying metrics in the broader sector.
Price Performance
General Electric Company (GE - Free Report) , which once had undisputed dominance over the sector, has almost completed its massive restructuring initiatives to focus on core industrial operations by divesting most of the financial units under GE Capital. Perhaps the high-growth potential of the Industrial sector and the credit risks associated with the financial businesses had been the most decisive factors behind the initiative.
One of its peers, Honeywell International Inc. (HON - Free Report) , has regularly fine-tuned its portfolio according to evolving market needs. The company has sold about 60 units (accounting for $7 billion in sales) since 2002 and has acquired another 90 companies contributing $14 billion in revenues over the same period.
For the last six-month period, Honeywell clearly outperformed General Electric with an average return of 10.3% compared with the latter’s 1.0%. Also, during this period, Honeywell shares performed better than the Zacks categorized Diversified Operations industry that increased 8.1%.
Zacks Rank & VGM Score
With a Zacks Rank #2 (Buy), Honeywell has a Value Growth Momentum score (VGM score) of ‘B’. On the other hand, General Electric has a VGM Score of ‘D’ and a Zacks Rank #4 (Sell). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Our research shows that stocks with a VGM score of ‘A’ or ‘B’, when combined a Zacks Rank #1 (Strong Buy) or #2, offer the best investment opportunities for investors. Consequently, Honeywell appears to be better positioned compared to General Electric with regard to these metrics.
Estimate Revisions
Over the past two months, Honeywell’s current quarter estimates remained steady at 62 cents, while that for the current year have increased by 2 cents to $7.04 per share.
General Electric’s current quarter estimates have decreased significantly from 31 cents to 17 cents during the last two months, while current year estimates fell to $1.63 from $1.65 per share.
To Sum Up
Based on the current scenario, Honeywell seems to have outshined General Electric on all fronts. However, in a major hint of re-conglomeration, General Electric has inked a definitive agreement with Baker Hughes Incorporated to merge its Oil & Gas business with the latter. The partnership aims to arrest the dwindling sales of GE Oil & Gas business by forming an industry leader with an unrivalled mix of service and equipment capabilities. The strategic deal fortifies the beleaguered business to counter competition from rivals like Schlumberger Limited (SLB - Free Report) and Halliburton Company (HAL - Free Report) .
Despite these attempts, Honeywell shares appear well poised to beat the industry and fundamentally strong to withstand risks. Again, Honeywell stands out as a better investment proposition compared to General Electric.
5 Trades Could Profit "Big-League" from Trump Policies
If the stocks above spark your interest, wait until you look into companies primed to make substantial gains from Washington's changing course.
Today Zacks reveals 5 tickers that could benefit from new trends like streamlined drug approvals, tariffs, lower taxes, higher interest rates, and spending surges in defense and infrastructure. See these buy recommendations now >>