Investing in conglomerates was once considered a great way to get exposure to a variety of sectors. But while that strategy hasn’t really borne fruit, there are conglomerates — especially those in the industrial sector — that still offer good investment opportunities, some global money managers believe.

The prevailing rationale for investing in a conglomerate used to be that a good management team could run the company’s various businesses so that slowdowns in one area were offset by stronger growth in another. In addition, growth in all businesses could be funded at a lower cost because of a strong credit rating for the holding company. The result would be a company that was worth more than the sum of its parts.

That theory has not worked out overall in practice, however, and most conglomerates trade at a discount to the sum of their parts.

Nevertheless, there are quite a few conglomerates in the industrial sector worth considering. Some — such as Fairfax, Conn.-based General Electric Co. — have substantial operations that don’t fall within the industrial sector. GE’s consumer credit business accounted for about 15% of its US$124 billion in revenue in the nine months ended Sept. 30, while media and entertainment accounted for 9%. GE also makes consumer appliances in its industrial products division.

Meanwhile, Ams-terdam-based Royal Philips Electronics NV produces so many consumer products (lighting and consumer electronics) that it is sometimes considered a consumer goods company.

St. Paul, Minn.-based 3M Co. also has many consumer products, including well-known brands such as Post-It notes, Scotch tape and Scotchgard fabric protector.

In the nine months ended Sept. 30, Philips’ revenue was almost 20 billion euros while 3M’s was almost US$20 billion.

Munich-based Sie-mens AG, second to GE in size with revenue of 60 billion euros in the nine months ended June 30, makes fewer consumer products but still produces some home appliances, computers, home-security systems and hearing instruments.

But the big growth drivers for all four companies remain their industrial businesses, which include:

> medical-imaging equipment is a big growth business as a result of the aging population. GE, Philips and Siemens have a part in this business, while 3M makes other medical products;

> businesses that are taking advantage of the industrialization and fast growth of emerging markets (GE, Siemens and 3M);

> energy power generation (GE and Siemens);

> transportation-related businesses (GE, Siemens and 3M); and

> automation and drive systems (Siemens).

Although these conglomerates are involved in similar businesses, one factor separating those based in the U.S. from those in Europe is their management. Philips and Siemens both have suffered as a result of less visionary leaders. Some analysts even dismiss Philips, calling it old-fashioned.

Siemens, for its part, was involved in a bribery scandal in 2006 that ended earlier this year. It now has new management, which has promised major restructuring and a shareholder-friendly company. This potential transformation of Siemens excites a number of analysts.

Here’s a closer look at the four:

> General Electric CO. GE’s management team is considered to be very good. It is well known for doing a solid job of running its businesses, says Charles Burbeck, head of global equities at HSBC Halbis Partners in London. He lauds GE for identifying growth areas and selling off businesses in stagnant sectors — such as its plastics operations, which it sold earlier this year — to reinvest in growth areas.

GE also does a lot of business globally, including in emerging markets, which results in geographical diversification and relatively steady growth, Burbeck notes.

GE’s industrial divisions include jet and locomotive engines, power turbines, medical equipment, security products and water treatment.

Burbeck doesn’t own GE stock, however, because he considers it fairly valued, adding that it’s hard to find hidden potential.

Patricia Fee, money manager at IG International Management Ltd. in Dublin, isn’t enthusiastic about GE’s consumer financing business. “If I want exposure to financial services, I’ll buy a financial services company,” she says.

She isn’t the only investor who thinks so, particularly in light of weakening U.S. consumer spending and a declining housing market.

But analysts at UBS Ltd. in New York find GE’s current valuation attractive in a Sept. 19 report. The UBS report says GE’s natural gas turbine business is likely to record stronger than expected orders this year and next, which could improve earnings growth in 2008 and beyond.

@page_break@UBS has a 12-month target price of US$47 a share. There are 10.3 billion widely held outstanding shares. The shares were trading around US$40 in late October.

Joe D’Angelo, portfolio manager at Signature Advisors, a unit of CI Investments Inc. in Toronto, likes GE’s exposure to global infrastructure. “Order rates are booming in the 20%-plus range,” he says.

Analysts at J.P. Morgan Securities Ltd. in New York agree that infrastructure demand remains strong and, as a result, they expect an acceleration of earnings in 2008 following the mixed third-quarter results that have pulled down the stock price.

GE reported net income of US$15.5 billion in the nine months ended Sept. 30, up from US$14.3 billion a year earlier. Revenue was US$124.2 billion, an increase from US$110.5 billion. GE held US$491.6 billion in debt as of Sept. 30.

> Royal Philips Electronics NV. J.P. Morgan has a “buy” rating on Philips and the company is Burbeck’s top pick among the industrial conglomerates. However, for those interested in investing in Philips, Burbeck recommends that investors plan to keep the investment for at least three years because it may take time for other investors to clue in to the company’s potential. Certainly, there was negative reaction — too much, according to the J.P. Morgan report — to the third-quarter results that were recently released.

Philips has become much more focused and is involved in businesses with long-term growth potential, such as medical imaging and LED lighting, Burbeck says. He expects earnings per share to grow by at least 15% a year for the next three to four years and multiples to expand, noting that the company was recently trading at just 1.4 times book value, significantly cheaper than its U.S. counterparts.

Philips is also trying to move up the value chain in consumer electronics with products such as electronic toothbrushes, razors and home blood-pressure monitors.

Although Philips has done well with high-tech investments in the past, that is a volatile area and the company has sold off most of these, Burbeck says.

Net income was 4.7 billion euros in the nine months ended Sept. 30, vs 2.8 billion euros for the same period a year earlier. Revenue increased slightly to 18.8 billion euros from 18.6 billion euros. Long-term debt was three billion euros as of Sept. 30. Its 1.2 billion widely held shares were trading around 29 euros a share in late October.

> Siemens AG. Although Siemens is involved in many very high-quality industrial businesses with what Burbeck describes as “some world-class leading positions,” he is taking a wait-and-see attitude to the new management.

Others, however, say now may be the time to buy into Siemens — before it’s clear the restructuring works, assuming that it does. Fee is among those who see potential: “There’s lots of low-lying fruit.”

A Sept. 24 UBS report agrees, noting that its analysts believe the restructuring will be “faster and more comprehensive than expected.” The UBS report expects Siemens to focus on the medical, power and automation sectors. It also thinks there will be some cash distribution to shareholders.

UBS’s target price for Siemen’s 892 million widely held shares is 122 euros each. The shares were trading at around 90 euros in late October.

Net income for the nine months ended June 30 was 4.1 billion euros, up from 3.2 billion euros a year earlier. Revenue was 59.9 billion euros, vs 55.5 billion euros. Long-term debt was 11.1 billion euros as of June 30.

> 3M CO. Although Burbeck calls 3M “very high quality,” it’s too diverse — with 55,000 products sold around the world — for his taste. He prefers more focused companies. In addition, he doesn’t think 3M’s stock is undervalued, although it might be interesting six months from now, when investors are looking for “return to growth” plays, he says.

UBS and J.P. Morgan analysts, however, both have “buy” ratings on 3M. UBS’s 12-month target is US$108 a share, well up from the US$86 a share at which the 716 million widely held shares were trading in late October.

In an Oct. 10 report, the UBS analysts note that 3M plans to move production closer to customers in low-cost, high-growth emerging markets. 3M estimates that this would allow it to reduce labour and freight costs by US$300 million-US$400 million and inventory levels by US$700 million by 2012 while reducing taxes and improving service levels.

The J.P. Morgan report also finds 3M’s current valuation attractive and points out that 62% of its sales are international. 3M is also very profitable, with a 28% operating margin in the nine months ended Sept. 30.

Net income was US$3.2 billion in the nine months vs US$2.7 in 2006. Revenue was US$18.3 billion vs US$17.1 billion. Long-term debt was US$2.8 billion as of Sept. 30. IE