3 Reasons You Shouldn't Ignore GE

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The market's lack of response to General Electric's (NYS: GE) recent earnings says that investors may have decided that the Dow's oldest company is past its prime. However, I can think of three reasons that writing off GE is a mistake.

1. It's on an upswing
GE's second-quarter earnings were impressive. Profits rose 21% year over year to $0.35 per share, marking the fifth consecutive quarter of double-digit earnings growth. Infrastructure orders were up 24%. And if you remove the sale of NBC Universal to Comcast (NAS: CMCSA) , revenues rose 7%. It appears the company has begun to recover from the effects of the recession and GE Capital's unwise pre-meltdown investment decisions.

2. Built-in diversity
Fellow Fool Rich Smith thinks investors may have failed to respond to GE's earnings because the company is simply too big for the average investor to wrap his or her mind around. I can see his point. The company makes appliances, light bulbs, jet engines, health-care equipment, and nuclear reactors. It also has bets on electric cars and consumer credit.

I'll admit that it's a lot to follow, but this diversity can act as a kind of safety net. For example, in the last quarter, the continued weakness in the housing market and the end of government incentives led to a 12% year-over-year drop in revenue from appliances. However, the company's strong performance in nearly every other segment balanced out the decrease.

3. Who doesn't want a better light bulb?
I was also happy to see that GE's second-quarter R&D spending increased 40% year over year. Since its founding in 1878, GE's drive to create new and improved technologies has been the company's greatest asset. From its frequently reinvented light bulbs to its developments in smart-grid technology, the company's innovations have paid big returns. For example, GE spent $1 billion developing the GEnx jet engine, which returned $15 billion in orders. More recently, contract wins for its LEAP-X jet engine at Boeing (NYS: BA) and Airbus helped raise GE's backlog -- the total value of orders waiting to be filled --to $189 billion.

Foolish takeaway
There's a reason General Electric has held a position on the Dow Jones Industrial Average since the index's creation. For all of its ups and downs, the company remains a great innovator and an impressive money-making machine. I'd say that's enough to earn the company a spot on your watchlist, or even in your portfolio.

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At the time this article was published Fool contributorPatrick Martinowns no shares of any of the companies mentioned. You can follow him on Twitter at @TMFpcmart03. Try any of our Foolish newsletter servicesfree for 30 days. We Fools don't all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.

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