Hitachi and General Electric, big companies that did well in 2023
Energy transitions providing good investor outcomes
Hitachi HVDC Light transmission system in Germany to move renewable energy (wind) for up to 5 million households 500km from North to South Germany. Source Hitachi
My background is BioTech and that goes with a tolerance for risk that is outside what many investors can cope with. I do keep an eye out for more conservative companies which outperform and produce results that belie their size. 2023 has been a tough year; 72% of companies on the S&P500 underperformed that index. The lion’s share of the outperformance on the S&P500 came from the “Magnificent 7” (Apple (AAPL), Microsoft (MSFT), Amazon (AMZN), Alphabet (GOOG), Nvidia (NVDA), Meta Platforms (META) and Tesla (TSLA)). I have not spent a lot of time looking closely at the S&P 500 for other companies which did well in 2023, but General Electric (GE) did come to my attention. Whereas the S&P500 performance in the past 12 months (not calendar year 2023) was up 22%, GE is up 67%. This is a pretty amazing performance for a huge conglomerate, and its best result in more than 50 years. I live in Australia and like to look also to companies in our region. This led me to come across big Japanese company Hitachi, which is not on the S&P500, but is a top 10 constituent on the S&P Japan 500. It is listed on the Tokyo exchange (TYO:6501). It can also be invested in via ADR shares in the US (OTCPK:HTHIY). Based on its US ADR performance, Hitachi is up 46% over the past 12 months.
These results for GE and Hitachi are extraordinary for huge corporations, but they are not a fluke as both Hitachi (HTHIY) and GE (GE) have also outperformed the S&P500 over the past 5 years, with S&P500 up 82%, GE up 136% and Hitachi up 146% over the past 5 years.
Hitachi and GE are interesting because they prove the exception to the current obsession by the markets in the US with the “Magnificent 7”. They are very solid engineering and technology companies.
It is no accident that these companies have performed well, but it is worth noting that both of these companies have made some bold calls about where they should invest their efforts. Success comes to those who see the future better than their peers and work out how to build businesses that make breakthroughs, while others either fail or are too timid to attempt change. I argue that a significant part of the success of both of these companies relates to understanding that we are entering a period of massive change as the world moves to exit the use of fossil fuels. Our world is currently largely dependent on fossil fuels for power and transport. The big change that is now underway involves electrifying everything. While neither GE nor Hitachi have staked their entire businesses on contributing to the exit from fossil fuels, both have made big bets about a decarbonized and electrified future.
This article gives a snapshop of some interesting features rather than attempting to summarise the businesses of GE and Hitachi. I give a flavour of some of the things that have caught my attention.
Hitachi
Hitachi is a huge Japanese conglomerate (1,000 subsidiaries and 335 overseas corporations) involved with IT, innovative rail, industrial machinery, and power management to name just a few areas. Its history dates back to an electrical repair shop in 1910 at a mine north-east of Tokyo, producing a small electric motor. The business was built around heavy electrical equipment and industrial machinery. It built Japan’s first large scale DC electric locomotive and then got into communications equipment. Hitachi had an important role in Japan’s post-war reconstruction, especially relating to power generation. In the 1960’s Hitachi also focused on consumer goods and was an innovator in colour television and computers. The computer interest led to manufacturing developments and supercomputers. There have been many business developments with major international corporations.
My particular interest in Hitachi revolves around their developments in grid stabilisation and management, especially in relation to interconnecting power sources and power users over long distances. This is a crucial element of the renewable energy transition that is still seen by many as a reason why intermittent renewable power cannot replace fossil fuels. The Hitachi technology leadership is a key element in the exit from use of fossil fuels.
The four dimensions of flexibility with digital technology at the core. Source Hitachi Energy
The above picture might be news to readers familiar with the coal, oil & gas industry view that “base load” power is essential for a stable grid. “Base load” is an outmoded concept. Within the above Hitachi image lies core aspects of some of Hitachi’s business which focuses on stable and flexibly managed power delivery.
Hitachi has been involved in moving electricity over long distances for almost 70 years. HVDC (High Voltage Direct Current) technology involves efficient movement of electricity up to thousands of kilometers. Hitachi claims to have delivered more than half of the world’s HVDC projects.
Hitachi and GE have a historic partnership in new generation SMRs (Small Modular Reactors). I’ve considered SMR technology in a recent article. If you check out this article you’ll see that I’m sceptical about SMRs. This is one of the issues you face when investing in huge corporations. You’ll almost certainly find some aspects of their business that you are not enthusiastic about.
GE
The Haliade-X14 MW offshore wind turbine. Source GE
GE’s buzzword is that “…for more than 130 years, GE has invented the future of industry”. GE claims that it has changed the world through innovation in transport, power, devices and environmental efforts.
GE is huge, with major positions in many major industries, with special reference to aerospace, renewable energy, turbines, nuclear power. Currently its aerospace area is powerful, but its renewable energy investments seem well positioned for the future.
I’ve been interested in GE’s renewable energy portfolio, especially its on- and off-shore wind projects. It has a leading huge offshore wind turbine driving its developments in that area.
Conclusion
This article is a very high level view of Hitachi and GE. There isn’t enough here for you to base a decision to invest (or not) in either of these companies, but I hope I’ve given you a taste of what could become interesting investments that become part of your investment portfolio. It is clear that both companies have a very solid track record of progressive value growth over the past 5 years.
I’m not a financial advisor but I am very interested in the massive changes underway as the world exits fossil fuels. I’m interested to hear if my coverage is interesting to you and your financial advisor. It works for me in my investing efforts. I’m yet to purchase shares in either GE or Hitachi, although I’m contemplating the latter.