General Electric, which makes everything except kitchen sinks, got in trouble when its diversification went awry, and the 124-year-old company posted billion-dollar losses in financial services, which was far from its area of expertise. But don't write off all conglomerates because of GE's empire-building fetish.
Danaher (DHR - Get Report) and 3M (MMM - Get Report) recorded big gains over the past year as the stock market rallied. Danaher rose 56%, and 3M increased 97%, each with low volatility compared with broader equity indices.While 3M and Danaher have "buy" ratings from the TheStreet.com Ratings' model, both are bested by United Technologies (UTX - Get Report) in terms of overall score. All three come in far ahead of General Electric, which has a "hold" rating. United Technologies enjoys the diversification of a conglomerate, while protecting itself from wildly disparate industries such as entertainment and financial services, which contributed to GE's downfall. United's subsidiaries include Pratt & Whitney engines, Otis elevators, Carrier air conditioners, aircraft-systems maker Hamilton Sundstrand and Sikorsky helicopters. Those industries allow for diversification benefits, but their core abilities are similar enough to enable management to focus on one primary concern: engineering superiority. After all, adding disparate industries to a business plan makes every decision difficult, since the outcomes multiply. United Technologies' focus on the military, a segment of the budget the government is unwilling to cut, and major systems like heat, ventilation and air conditioning, which many companies are upgrading and improving to boost energy efficiency, makes it an exceedingly attractive investment. In addition to its strategic alignment, United Technologies also sports strong financials, making it clearly superior to GE.