Wide-Moat GE Has Come a Long Way

Barbara Noverini: We believe that General Electric (GE) has come a long way from the troubles that plagued its captive finance segment, GE Capital, since the financial crisis. The company has done a really great job at repositioning its portfolio in support of the businesses that make up the heart of the industrial powerhouse that we've always known. We believe that General Electric has a wide economic moat for three main reasons.

First, its world-renowned research organization develops proprietary technology, patents that are intangible assets that allow the company to commercialize its innovative technology.

Secondly, we believe the research organization is highly scalable, supporting a low-cost advantage for GE. For example, one subsea drilling platform benefits from technology created in other segments, turbines from the power and water segment, imaging technology from health care, and distribution technology from the energy-management segment. This allows GE to spread the cost of R&D across the entire enterprise, supporting that advantage.

Third, we believe that GE's products represent high switching costs for the customers. These products represent a large capital investment, supporting mission-critical investments for the most part. As such, this gives rise to GE's burgeoning services segment, which ensures the customer that these pieces of equipment will operate reliably and also secures an important high-margin recurring revenue stream for GE.

It is for these three reasons that we believe GE has strong competitive advantages that will endure over time.