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What do Canada, Peru, Mongolia, and Australia have in common?

General Electric (GE - Free GE Stock Report) has pegged them all as the next frontier of resource-rich nations, a category once reserved for the likes of Brazil, Russia, India, and China. GE appears to be shifting away from the fast-growing Asian economies, like China and India, and turning its attention toward the aforementioned, relatively untapped resource-rich countries. Combined, they are just about as big as China and offer the same, if not more, growth potential in the eyes of management. Moreover, many have business-friendly laws and less or no competition from state-owned enterprises. The bulk of the appeal to management is these nations’ reliable legal systems and free markets.

The move makes sense on paper, too, as revenue generated in Australia jumped 26% in the first quarter, compared to the 18% advance that was notched in China. The top line rose 40% in Canada and just about doubled in Russia, two resource-rich nations in which the conglomerate has already made significant inroads. Going forward, management expects revenues derived from resource-rich countries to rise as much as 25% a year between now and 2015, compared to just 10%-15% in Asia.

Why now?

Management has shuffled the company’s business lines to emphasize energy, essentially betting that the prices of oil & gas, minerals, and metals will remain strong for at least the near term. GE is looking to capitalize on the likelihood that greater efforts will be made in countries from Australia and Mongolia to Peru and Canada to extract fossil fuels from the ground at a rapid pace. Once the conglomerate has established itself, it can sell compressors, locomotives, generators, etc. in these countries to aid the production efforts.

There is a second prong to the strategy, too. GE is anticipating that the proceeds from the selling of oil, gas, iron ore, etc. will be reinvested in the countries, in places like healthcare, power generation, and infrastructure, all significant operations at GE.

What’s all the fuss about Australia?

GE has honed in on Australia, in particular, thanks to Ichthys, a $34 billion liquefied-natural-gas (LNG) project that is 560 miles off Australia’s northern coast. The undertaking is currently just one of several projects in the works that will probably propel the country to become the world’s leading exporter of LNG in about five years. Ichthys has already produced $1.1 billion in GE contracts for turbines, compressors, and underwater production systems, according to top brass. Another massive project, Gorgon, has generated $1.3 billion for GE.

GE is also looking to establish a footprint in the mining industry in Australia. Indeed, it recently agreed to buy Aussie mining services firm, Industrea, for about A$700 million. Industrea operates from seven locations in resource-rich Australia, and has a considerable presence in China, should the company decide to once again turn its attention to that emerging economic giant.

Finally, GE’s finance arm is doing well in Australia. The country is currently number two, behind the U.S., in terms of revenue generated for the parent company, but business there is growing rapidly. In fact, management expects revenues to that nation to double over the next three years, from a base of approximately $2.9 billion in 2011.

Revenues derived in Australia are now on pace to surpass those generated in China in 2012, which was unthinkable just a few years back. Indeed, GE set a goal of achieving $10 billion a year in sales in China by 2010, and it is only about halfway there. In 2012, revenues generated in Australia will easily top $6 billion.

Will GE ever return its focus to China?

Essentially, GE is grabbing the low hanging fruit first, by focusing on Australia, Russia, Canada, and the like. It has no plans to give up on China any time soon, even though sales to that nation have flat-lined at about $5 billion over the past five years and some growth initiatives are not panning out. In fact, top brass remains bullish on China over the long term, and will continue developing joint ventures, investing in the area, and competing with the state-owned enterprises.

Investment Advice

The growth potential inherent in these shares is considerable. The company’s finance arm was hard hit by the financial crisis of 2008 and 2009, but operations are making wide strides out of those doldrums. We think many of GE’s business lines have ample room to grow, and this phenomenon will equate to larger revenues and earnings out to 2015-2017. Investors getting on board now should be able to grab much of the capital appreciation we envision over that span, all the while pocketing the handsome dividend these shares yield.  

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.