It often boils down to sheer preference when investors pit General Electric (NYSE: GE) against 3M Co. (NYSE: MMM) to determine which international conglomerate is the better investment.

Both companies have merit, but which one is better for investors based on today's stock prices and forward expectations? Now that both have reported earnings, it's time for a look.

General Electric
Two weeks ago, General Electric showed us its earnings and guidance for 2007. The company earned $4.5 billion and EPS came in at 44 cents on revenues of $40.2 billion.

The company is still in the midst of selling off GE Plastics, and this is expected to fetch more than $10 billion. GE said it expects second-quarter, per-share earnings of between 52 cents and 54 cents and reaffirmed its previous guidance for EPS for the year at between $2.18 and $2.23 (compared to $2.01 trailing, so roughly 10% growth).

The street interprets this guidance as the "real range", rather than as overly conservative. The day it posted earnings, GE's shares gained 20 cents to $35.38, and the shares sit in the $37 range today.

Based on the company's forward guidance, the stock has a forward P/E ratio of roughly 15.8. Just last night, CEO Jeff Immelt noted the lagging stock as a frustrating point. GE has a massive market cap at $368 billion. Its five-year trading band is roughly $24 to $38, but this too has been dead money for almost three years, after close to a 50% gain once the economy recovered.

Recently, earnings were released at 3M as well, and its EPS report was $1.28 versus a consensus estimate of $1.12. A gain from a unit sale caused the earnings to go higher. Management said it is being conservative in its guidance, and CEO George Buckley said the company sees no upside to increasing annual guidance.

Wall Street interprets this statement as Buckley being extremely cautious in a harsh regulatory environment. Buckley knows that he has to perform better than expectations if he is going to keep Wall Street happy with him at the helm.

Outside of one-time items, the company maintained EPS guidance for 2007 at $4.60 to $4.75, which, based on the mid-point in that range, would give it a forward P/E ratio of 17.1. The company ran 5% after its earnings, and its stock is now back over $80.

Who Wins?
Some would say that this is a coin flip, and many think it boils down to a matter of preference. The truth is, GE just has more areas of growth within the company than 3M. Although, 3M might be more "Wall Street friendly", based on the stock's recent gains.

Using forward P/E ratios doesn't show the entire picture -- GE's 15.8 P/E ratio and 3M's 17.1 P/E ratio each compare reasonably to the S&P 500 Index forward P/E multiple of 15.5.

One problem here is that GE just has a vast size differential, and that is going to be the key factor for investors. In theory, for a 1% gain in each stock, it takes roughly $6 of inflows into GE stock versus each $1 in 3M. Those aren't absolute, but you get the idea.

3M drastically needs to look over all of its lines, reviewing what it can add and what it can cut. This requires a market that believes in the company, and you can be assured that Wall Street will demand additional outperformance next quarter and beyond. GE is already executing and the company has been making its changes in units with acquisitions and divestitures.

What looks to have happened here is that the law of large numbers has worked against GE, since it has been dead in a great stock market. The market should, at some point, come around and give this a slight "multiple-premium". Based on this, GE seems a bit better positioned compared to 3M, because its execution history has been far better.

Who would you rather have running your conglomerate, Immelt or Buckley? I would feel more comfortable betting on Immelt and GE.

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