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"General Electric (GE) shows solid earnings growth potential, is attractively valued and appears to be a bargain at its current share price," says Dr. Melvin Pasternak.
The editor of Double-Digit Trading explains, "Fundamentally, GE's earnings recovery could carry the stock higher. The company expects 2010 to be a turnaround year. GE should benefit from $3 billion of cost cutting and restructuring measures.
"GE operates in more than 100 countries. And GE continues to expand its presence in India and China.
"The company remains one of the largest appliance manufacturers on the globe; it is also one of the world's largest makers of jet engines, electric turbines and medical-imaging equipment. GE Capital is the largest financial-services firm in the U.S.
"Technically, GE, like the S&P 500, has broken its intermediate downtrend line drawn from the late April peak at $19.58. Shares of this blue-chip firm closed the week trading near $15.70, but could be about to soar.
"Technically, the next resistance zone is near $16.45 -- the late June recovery level and also exactly where the 30-week currently intersects. Beyond this level, GE could again test its April 2010 high. Or, as analysts at Credit Suisse project, the stock could advance toward the mid-$20 range.
"The indicators are mixed, with a bullish cast. If a buy signal does occur, it is likely to be significant.
"RSI has been in a sustained uptrend since October 2008, when the stock became deeply oversold. Stochastics shows the stock has become deeply oversold. However, %K has crossed above %D and if stochastics strengthens further, a significant buy signal would be given.
"The company is in the process of downsizing its GE Capital Finance division and creating a joint venture media broadcast company with Comcast. As such, analysts project 2010 earnings will rise +7.8% to $1.11, compared with $1.03 in the 2009 year.
"For the 2011 year, a recovery in the rail and aviation sectors may help growth accelerate. Additionally, as the global market begins to rebound, demand for GE's products should increase in countries such as China and India.
"The 15 analysts who follow the company expect 2011 earnings to increase +18% to $1.31.
"In addition to growth potential, GE is attractively valued based on its one-year price/earnings-to-growth ratio (PEG) of 0.91 (16.4/18). A PEG of one or under shows good value.
"GE pays a respectable annual dividend of $0.40 per share, or roughly 2.5%. But GE recently said it plans to increase its quarterly dividend by +20%.
"If its dividend were increased to $0.48 per year the current yield would increase to 3%. The company also announced plans to extend its share buyback program.
"My initial target is $19.56, just below the April high. My stop-loss is $13.74, just below an important level of historical support dating back to August 2009. Based on a recent closing price of $15.71, the risk reward ratio is 2:1."
Steven Halpern's TheStockAdvisors.com offers a free daily review of the favorite stock ideas of the nation's top financial newsletter advisors.
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Reader Comments (Page 1 of 1)
7-30-2010 @ 10:07PM
ruthaf said...
Long time GE investors have been waiting for 11 years for Ge to start performing. By now it's clear that can't happen under the present leadership. They don't know what they're doing.