GE vs. Google - It's no contest!

Posted Jul 25th 2006 4:48PM by Sheldon Liber
Filed under: Earnings Reports, Forecasts, Rants and Raves, Google (GOOG), General Electric (GE)

Since I posted, "10 reasons I think Google is going down," Google has gone down. Its high over the last three months has been about $425 and it currently stands at about $388. Similar comments to mine have been made in most business publications. However, most analysts are not as cautious, with some making very optimistic 12-month projections about future earnings. Wall Street price targets reach as high as $500, even $600.

During this same three-month period GE has gone down -- from about $35 to about 32.50. I made no such negative posts about GE, yet it moved downward in similar proportion to Google. I actually said some positive things about GE during this time.

Both companies reported solid earnings this past quarter and neither company got any respect from the marketplace. Both saw their valuations droop -- GE by about .5% and GOOG almost 2%.

So going forward which is the better investment? No one will be surprised if I say GE.

GE pays a dividend of 3.1%; Google pays none.
GE is diversified with many revenue streams; Google has only one.
GE has massive barriers to entry in its many enterprises; Google has none.
GE is valued at the price it was six years ago $339B; Google had no valuation in early development stage, but today is valued at $118B.
GE has a trailing P/E of 20; Google's is 57.
GE is a value play; Google is a bet on growth (maybe a lot -- maybe)

Clearly most GE and Google investors view the world differently. No one has commented to me that they are going to get rich with GE. However, some Google investors have told me they are going to get rich and I will be sorry. Unfortunately, from the time I posted "10 reasons" through today, these same people have not refuted a single one of my reasons. Other commentators have actually pointed out additional reasons I did not include. Today it might be 15 reasons.

GE is obviously the safer bet. But what if it actually had the potential to match Google's growth (on a percentage basis) over the next 12 months? I know some of you think I'm crazy, but pause and think about it: if Google appreciated from it's current price of $390 to $500 by next year, that would be about a 28% increase and Google would be reaching new territory. However, a 28% increase in GE would lift it from $32.50 to about $41.50 -- a place the stock has traded before. As a matter of fact, that is the midpoint in the valuation over the last five years. I think this is a possible target price.

Many Google supporters believe that Google will pass $500 next year. Maybe it will. There is no crystal ball in my office. However, even if Google hits this target and GE does not hit $41.50, on a risk vs reward basis GE has to be the more sensible bet. GE has increased shareholder equity significantly over the last five years with nothing to show for it. It may be time for the show!

Tags: dividends, GE, General Electric, GeneralElectric, Getting Rich, GettingRich, GOOG, Google, Growth versus value, GrowthVersusValue, P/E, Valuation

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Reader Comments (Page 1 of 1)

7-25-2006 @ 1:48PM

Brenda Veach said...

You ARE soooooooo negative and probably quite biased on your opinions of google...maybe, if you were around in the 90s you would have been quite the same with other growing, successful companies that you NOW appear to favor???????

7-25-2006 @ 1:58PM

Sheldon said...

Brenda...Name any of the stocks you are thinking of...just one. Ebay, Yahoo, Amazon, Cisco, JDSU, Lucent, Nortel all valued less than in the 1990's most others out of business. Any facts at all would be informative to our readers. What do I appear to favor? Your comment is indicative of the type of comments I receive. Frustration at my posts but no facts. Love to reverse my opinion...and for the right price I will...I'm sure. (Disclosure: I do not own or have any option position in GE or GOOG)

7-25-2006 @ 2:29PM

Judd in Santa Monica said...

I think that a year from now Sheldon's comments will look very wise.

7-25-2006 @ 3:15PM

Ron Pogue said...

To me, it seems just like a replay of the time before the dot com bust.
Bet on bricks and mortar (GE), or bet on the "sure thing" (Google) of the future.
I think I have learned my lesson.

7-25-2006 @ 4:32PM

Larry said...

Actually, neither is a value. GE has problems that begin with the fact they have been more a financial company than a good motor builder. They lost their tech edge to EMR. SSL. Their accounting reputation is in shambles. It is just an over-owned company that has lost leadership, much in the vein of MSFT and C.

Goog is an accident waiting to happen.

7-25-2006 @ 4:47PM

James said...

From your keypad to God's ears. I am a dollar cost averaging investor in GE and have been for years: $100/month - $1 processing fee. I remember GE in the low 60's and can't wait for it to return. I am a firm beleiver in "get rich slow."

7-25-2006 @ 8:08PM

Lisa said...

I have GE stock in my portfolio. I don't have Google, except as part of a couple of mutual funds. I prefer GE. I prefer "boring".

7-25-2006 @ 9:05PM

Mr. noitall said...

I would have to agree with Larry. I wouldn't by either GE or Google. And as for the dollar cost averaging strategy, well I wouldn't count on that working unless you want to wait 30 years or so for it to pay off, it at all. The facts are that the "buy & hold" theory is seriously flawed.

7-25-2006 @ 11:20PM

Investorial said...

I think the biggest difference between investing in GE and investing in Google is that those investing in GE can sleep better. =)

7-26-2006 @ 8:12AM

jack said...

The facts are that the "buy & hold" theory is seriously flawed. You have to be kidding. If you bought XOM 10 years ago and reivested the dividend, you would have had a gain over 250%

7-26-2006 @ 7:27PM

Mr.noitall said...

No, I am not kidding when I say the "buy & hold" theory is seriously flawed. You convveniently picked a stock (XOM) that is at or near it's ten year high.
Maybe you should try doing the math using a stock that is at it's ten year low?