For 2009 I will be tracking a real portfolio created this quarter in scary times, when everyone is second guessing themselves, the market, and the economy. Last week I wrote Chasing Value: Annaly Capital Mgmt -- from watch list to buy noting that Annaly Capital Management (NYSE: NLY) was acquired, for among other things its 15% yield and basic stability. It trounced the market in 2008, but the yield by itself was very rewarding and I expect that to continue.
Yesterday General Electric (NYSE: GE) dropped over 8% from $17.39 to $15.96. This triggered a buy order I had in at $16.00, after a negative outlook by rating agency Standard & Poors suggested that there was the potential that GE could lose its prized AAA rating sometime in the next two years based on stress it was feeling on its balance sheet related to its financial services division, and GE's uncertainty in other businesses.
The same rating agencies that gave AAA ratings to derivative garbage have all of sudden found religion and are trying to regain their credibility. I am not so sure that can be done so quickly. I would like to know how their calculations integrate the hundreds of billions of dollars our economy will be saving in energy, (oil & gas), construction (concrete, steel and labor), and financing costs that have come crashing down over the past six months.
GE does not know where they will be in two years. How in the world can S&P utter such nonsense with the slightest confidence? I suppose it does not matter because it created an opportunity for me.
GE has been trading around $16.20 for most of the day. After Warren Buffett invested in GE through Berkshire Hathaway (NYSE: BRK.A) about ten weeks ago I posted Chasing Value: General Electric is screaming to me! thinking that it would be a good idea to invest at some price less than the warrant price he negotiated. I followed up with Chasing Value: GE -- the water & power company considering infrastructure. Both good ideas and in both cases noting the high dividend yield.
The current yield is 7.65% with a of P/E ratio of 7.71. Normally the Yield would be half and the P/E would be double. If the figures migrate back to these levels or GE cuts its dividend, which I think is a possibility, the stock would still is a bargain and a long term hold. More than just thinking it is a bargain I actually bought it and intend to keep it for the long haul.
Update: GE finished the day at $16.50.
Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money. Disclosure: I own shares of GE stock.