The U.S. economy remains in a pronounced recession. So far, there's little to suggest that job market and household formation trends -- two tell-tale stats regarding prospects for a resumption of both revenue and earnings growth -- have bottomed. Without question you'd call this a selective market: select the wrong stock, and there's a 30-40% haircut up ahead; select the correct stock, and you're positioned for the recovery with modest downside exposure.
This market isn't fit for most investors, but if you have the risk tolerance to own (or increase a position in) a moderate-risk stock or two, consider GE.
Now you're probably saying: whoa! GE? As noted, this play is not without substantial risk. In the current climate, the market is sending signals that it's headed to Dow 6,000 (and perhaps even lower) -- something that would weigh even more on General Electric Company's (NYSE: GE) already beaten-down shares. GE's shares closed Monday down 93 cents to $7.58.
That said, here's the argument for GE: 1) Arguably, one of world's best, diversified industrial giants, 2) the U.S. recession will bottom in Q2 or Q3, 3) GE's 68% dividend cut to 10 cents from 31 represents a negative data point, but the argument forwarded here is that the cut represents the worst of the bad news: and a play favored here is to scoop-up quality names and business models at or slightly after large dividend cuts.
Insiders have also recently purchased shares, but that's not the main argument for a buy here. (For the record, CEO Jeff Immelt and Vice Chairman Michael Neal each bought 50,000 shares; Immelt paid $8.26 per share; Neal, $7.90 Bloomberg News reported Monday.)
The main drivers are the view that GE's jet engine, power plant turbine, and related industrial and infrastructure business will overcome GE Capital Finance's shortcomings. GE's industrial businesses should perform relatively well amid the global slump, and are well-positioned for the recovery. The First Call F2009 / F2010 EPS estimates for GE are $1.26/$1.31.
Stock Analysis: General Electric is a moderate-risk stock. Don't buy GE if you're a low-risk investor. GE is an investment, not a trade. Also, consider buying about only one-half your typical share allotment: 500 shares if you typically buy 1,000 shares; 250 if you typically buy 500 shares. Also, buy only 25% position of that position in GE now; then buy another 25% in three months, if U.S. economic conditions don't worsen substantially. Under any circumstance, don't buy more than 50% of your GE position in the first half of 2009. Sell/Stop Loss if you were to buy shares in this company: $3.25.
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Disclosure: Lazzaro has no positions in stocks, but does own shares in two Pimco Bond Funds: PHDAX and PYMAX.
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Reader Comments (Page 1 of 1)
3-02-2009 @ 6:30PM
omalley115 said...
I would n't buy GE if you paid me--any company that is part of NBC IS NOT IN MY PORTFOLIO--This is said by Cramer from C-N-B-C--don't you get it?? he is paid to push his bosses stock because he too is a part of NBC (National Barack Channel)
3-02-2009 @ 6:54PM
william lindblad said...
The technology that they are very good at you did not mention. It will make a difference and should be forefront by Sept.
This is just a prediction - I have no interest/ownership.
3-02-2009 @ 7:14PM
CJ said...
General Electric makes wind turbines, so it is a "good GREEN BUY." It is such a diverse company that it will do well as a "long hold."
I own shares in GE.
3-02-2009 @ 8:32PM
Sheldon L said...
Joe,
I agree with most of what you wrote, however, I am perplexed as to how you know this "the U.S. recession will bottom in Q2 or Q3".
Obviously, you know more than everybody else? ;-)
3-02-2009 @ 10:27PM
Landis Atkinson said...
GE is a real company. It is time for people to wake up and realize the evil of speculation, fueled by the creation of artificial investments and program trading. I am not just referring to hedge funds, but to index funds, options of all types, forwards, futures, and swaps that are not used to hedge the purchaser's or seller's cost or return. We are fast approaching an era where governments worldwide will need to consider permitting only direct investments in real companies such as GE.
3-03-2009 @ 6:15AM
hgholmes1953 said...
We need the up-tick rule BACK!!
3-03-2009 @ 10:35AM
Raybo said...
At best, GE is dead money for a looooong time. They have used NBC to misinform and delude investors away from their real business model. They buy and sell companies using obscene levels of debt, file a 200,000 page tax return to ensure obfuscation and for many years have continued the Welch attitude or superiority. No one knows how bad GE Capital is, and no one knows the value of what else is in the can. Please do not blame the shorts. Please do not blame it all on Immelt (although he has basically used the GM management style of relax, after all, this is GM). Analysts have followed the nonsense propagated by this sham for years and still do not have any real knowledge of what they are doing
3-04-2009 @ 6:23AM
Brad Faust said...
Be should be good in the long hall. Diversified, large, and conservative beyond the financial arm.
3-14-2009 @ 12:54AM
ValueHuntr said...
GE is undervalued. See detailed analysis at:
http://valuehuntr.com/2009/03/10/general-electric-company-nyse-ge/