How United Technologies is beating GE

(breakingviews.com) -- It is only fitting that United Technologies is buying assets from cross-state rival General Electric. At least in the eyes of shareholders, the manufacturer of Otis elevators, Pratt & Whitney jet engines and Sikorsky helicopters has emerged as the more successful of the two Connecticut-based industrial conglomerates.

Though it is the larger of the two with a $167 billion market capitalization, GE (GE, Fortune 500) is hobbling its way out of the credit crisis, diverting cash away from dividends and selling assets to shore up its balance sheet. Next week it's expected to sell a controlling stake in NBC Universal, the television broadcaster it has owned for decades.

Meantime United Technologies (UTX, Fortune 500), with its $63 billion market cap, appears in good health, quietly buying up assets, including the security systems operations that GE, led by Jeffrey Immelt, put on the block for $1.8 billion.

Both companies are sprawling industrial corporations with concentrated portfolios in the aerospace, power and infrastructure areas. Their main point of difference, however, explains why they find themselves at such remarkable odds.

GE made a massive bet on finance while United Technologies stuck to its manufacturing knitting. GE's decision has been dreadful for its shareholders of late.

Over the past year, United Technologies, under the leadership of Louis Chênevert, has returned 40% including dividends. That's 10 times GE's total shareholder return.

That period -- which includes the recent panic that especially hurt GE Capital -- may not seem a fair one to choose. Yet since February 2007 -- when the first rumblings of subprime distress became apparent -- United Technologies' shares are essentially unchanged while GE's have lost half their value.

Go back a decade and the picture isn't any different. Investors who rolled their dividends back into United Technologies stock have been rewarded with a 185% return. GE's shareholders are down about 55% on their investment.

Today United Technologies stock commands a valuation of more than three times its assets minus liabilities. That's about double the premium to book value that GE shares fetch. Put it all together, and United Technologies is able to swoop in and buy businesses from GE -- whose big bet on finance is forcing it to shrink and its shareholders to suffer.