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General Electric Company (GE) vs. Kinross Gold Corporation (KGC): Breaking Down the Diversified Machinery Industry’s Two Hottest Stocks

Kinross Gold Corporation (NYSE:KGC), on the other hand, is down -17.59% year to date as of 05/17/2018. It currently trades at $3.56 and has returned -4.81% during the past week.

General Electric Company (NYSE:GE) and Kinross Gold Corporation (NYSE:KGC) are the two most active stocks in the Diversified Machinery industry based on today’s trading volumes. Investor interest in the two stocks is clearly very high, but which is the better investment? To answer this question, we will compare the two companies across growth, profitability, risk, and valuation metrics, and also examine their analyst ratings and insider activity trends.

Growth

Companies that can increase earnings at a high compound rate over time are attractive to investors. Analysts expect GE to grow earnings at a 6.20% annual rate over the next 5 years. Comparatively, KGC is expected to grow at a 27.62% annual rate. All else equal, KGC’s higher growth rate would imply a greater potential for capital appreciation.

Profitability and Returns

Growth isn’t very attractive to investors if companies are sacrificing profitability and shareholder returns to achieve that growth. We will use EBITDA margin and Return on Investment (ROI), which control for differences in capital structure between the two companies, to measure profitability and return. General Electric Company (GE) has an EBITDA margin of 1.35%. This suggests that GE underlying business is more profitable GE’s ROI is -0.40% while KGC has a ROI of 7.20%. The interpretation is that KGC’s business generates a higher return on investment than GE’s.

Cash Flow



The amount of free cash flow available to investors is ultimately what determines the value of a stock. GE’s free cash flow (“FCF”) per share for the trailing twelve months was -0.17. Comparatively, KGC’s free cash flow per share was +0.02. On a percent-of-sales basis, GE’s free cash flow was -1.21% while KGC converted 0.76% of its revenues into cash flow. This means that, for a given level of sales, KGC is able to generate more free cash flow for investors.

Liquidity and Financial Risk

GE’s debt-to-equity ratio is 2.25 versus a D/E of 0.00 for KGC. GE is therefore the more solvent of the two companies, and has lower financial risk.

Valuation

GE trades at a forward P/E of 14.26, a P/B of 2.33, and a P/S of 1.06, compared to a forward P/E of 20.46, a P/B of 0.95, and a P/S of 1.29 for KGC. Given that earnings are what matter most to investors, analysts tend to place a greater weight on the P/E.

Analyst Price Targets and Opinions

A cheap stock is not necessarily a value stock. Most of the time, a stock is cheap for good reason. A stock only has value if the current price is substantially below the price at which it should trade in the future. GE is currently priced at a -12.97% to its one-year price target of 17.27. Comparatively, KGC is -32.19% relative to its price target of 5.25. This suggests that KGC is the better investment over the next year.

Risk and Volatility

Analyst use beta to measure a stock’s volatility relative to the overall market. Stocks with a beta above 1 tend to have bigger swings in price than the market as a whole, the opposite being the case for stocks with a beta below 1. GE has a beta of 1.03 and KGC’s beta is 0.30. KGC’s shares are therefore the less volatile of the two stocks.

Insider Activity and Investor Sentiment

The analysis of insider buying and selling trends can be extended to the aggregate level. Short interest, which represents the percentage of a stock’s tradable shares currently being shorted, captures what the market as a whole feels about a stock. GE has a short ratio of 2.03 compared to a short interest of 0.65 for KGC. This implies that the market is currently less bearish on the outlook for KGC.

Summary




Kinross Gold Corporation (NYSE:KGC) beats General Electric Company (NYSE:GE) on a total of 11 of the 14 factors compared between the two stocks. KGC is more profitable, generates a higher return on investment, has higher cash flow per share, has a higher cash conversion rate, higher liquidity and has lower financial risk. KGC is more undervalued relative to its price target. Finally, KGC has better sentiment signals based on short interest.

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