SOURCE: Street Investing

Street Investing

June 14, 2010 08:44 ET

Today's Conglomerates - The Art of Juggling

JOHANNESBURG, SOUTH AFRICA--(Marketwire - June 14, 2010) - - Except for a few sector icons, the conglomerate sector is one that many investors, nowadays, tend to avoid due to the complex nature of the different companies' business model. By definition, a conglomerate is a combination of several companies which are normally each involved in different business lines to form one mega company. The conglomerates in the United States began their golden era in the 1960s, before they started plunging out of favor of the market and investors in the mid-1970s. Whilst many investors thought the multi-tentacles reach of a conglomerate was a powerful criterion for growth and success back then, they soon realized that the very reason of their so-called multi-force would lead to their downfall as the conglomerates' profits were challenged by rising interest rates at that time as these mega-companies had to juggle several companies in a diversified portfolio of businesses. However, many industry experts believe that a number of conglomerates in the 1960s were largely mismanaged, and some of the conglomerates today are doing a far better job at managing their diversified businesses. 

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With the recession gone and the U.S. economy recuperating, the good news for conglomerates came during the recent earnings season. Many players in this sector reported better than expected results. 3M Co. (NYSE: MMM), the manufacturing conglomerate by excellence, released a record performance for the first quarter 2010 as all six of its business segments saw encouraging results. 3M profits for the quarter surged to 79% as the company gained market momentum in Asia while its U.S. market continued to remain weak. 3M has also been active on the M & A front in recent months, and its most recent acquisition, MTI PolyFab, helped increase its product pipeline for the aerospace industry. Another conglomerate, United Technologies Corp. (NYSE: UTX), famous for its Pratt & Whitney aircraft engines, Carrier heating and ventilation, Otis elevators and Sikorsky helicopters, also made a noteworthy earnings reporting with first quarter profits increasing by 20%. United Technologies cited its cut-cost measures and restructuring actions behind this quarter's results. The company's heating and ventilation business segment saw phenomenal growth during the quarter given that the segment experienced a nosedive of 80% at the beginning of the recession. 

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The conglomerate sector is still quite unpopular with investors. Nevertheless it has been able to come out of the recession without much damage even with its extended exposure as a result of a diversified portfolio of companies, and the sector is already delivering on its earnings result and 2010 profit guidance. "The recession has been a good time for many conglomerates to evaluate their weaknesses and as the economy continues to recover we might see those multi-industry giants entering a whole new era of success," commented James Stall of Sign up today at to access the full report on this company.

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