General Electric (NYSE: GE) is poised to grow bigger this year. While shares already grew since the start of the year, further growth is expected in the upcoming months toward the end of the year. There are three probable catalysts for growth of G.E. shares. They are as follows.
The Power Africa Plan of Obama
U.S. President Barrack Obama recently unveiled, over the weekend at the University of Cape Town, the Power Africa initiative worth $7 billion. This is part of Obama's plan to double the electricity access across 6 countries; namely, Kenya, Liberia, Tanzania, Ghana, Nigeria, and Ethiopia.
The funds will come from taxpayers' money. This includes $5 billion from U.S. Export-Import Bank (Ex-Im), $1.5 billion from the Overseas Private Investment Corporation (OPIC), and $285 million from the U.S Agency for International Development. Millennium Challenge Corporation (MCC) will inject approximately $1 billion to the project, as well.
This will also be in partnership with several private firms, adding $9 billion in private funds. One of the biggest partners is General Electric. The Power Africa project will provide more than 10,000 megawatts of energy to power up about 20 million African household. G.E. committed to provide 5,000 megawatts, particularly to Ghana and to Tanzania.
The participation of General Electric in Obama's Power Africa will further strengthen the company's Federal guarantees from the government. This will lessen the financial risks of G.E. in Africa, thereby making it more competitive.
G.E.'s New Acquisition
The Power Africa is just one of the many ventures of G.E. in its bid to expand its global footprint and to strengthen its financial position. On July 1, G.E. sealed the acquisition of Lufkin Industries (NASDAQ: LUFK), a leading artificial lift technologies provider, and at the same time an industrial gears manufacturer.
Lufkin is a $3 billion company by market capitalization with P/E ratio of 33.35. It is currently trading at 3.65x its book value. Lufkin is a profitable company that enjoys 13.8% quarterly revenue growth year-over-year, and 75.5% quarterly earnings growth year-over-year.
Lufkin showed quite an impressive performance in the stock market, gaining a stunning 54% for this year. This was mainly fueled by the uptick reactions among investors when news came out that G.E. formally agreed to acquire Lufkin on April 8. Shares soared 38% in pre-market trading on that day from $63.84 to $87.84 per share. Since then, shares moved up to $88 and plateau within the $88.00 to $88.50 range.
The acquisition will allow G.E. to take advantage of the artificial lift technology, utilities, and expertise of Lufkin to reach out to more customers a lot faster and more effectively. Out of one million wells that produce oil globally, approximately 94% are using artificial lift to raise hydrocarbons to the surface. Artificial lifts also make the natural flow of oil in wells more efficiently.
The acquisition of the profitable Lufkin Industries is expected to further boost G.E.'s financials for this year. While this may affect its cash flow, its earnings should improve, thereby sustaining its upward trend.
Strong Financials and Attractive Yield
One good reason to invest in G.E. is its attractive dividend yield of 3.28%, which is relatively higher than the average rates of a 10-year and a 20-year U.S Treasury Note at 2.50% and 3.19%, respectively. This is also higher than the 10-year United States Government Bonds yield at 2.47%.
In 2011, G.E. boasts of having paid $6.45 billion in dividends. Since 2009, the annual dividend is increasing and this will be sustained for this year. The company already paid out two quarterly dividends for 2013 at $0.19 per share, or a total of $0.38.
Aside from dividend investing, G.E. is also gaining in the stock market, growing 11.14% this year as of July 1, 2013. For the full-year 2012, General Electric gained 18.27%. If you add the dividend yield for that year at 3.39%, the total gain is a remarkable 21.66%. This year, its shares growth is right on track, with potential for further growth given the fact that Lufkin is already a part of the company.
When it comes to risk, it is minimal considering that General Electric is a mega cap company with strong market capitalization of $124.08 billion. It is also earning with 9.71% profit margin and 12.17% return on equity.
The company reported net income of $15.08 billion from $145.62 billion revenue. Year-over-year, its quarterly earnings grew 16.20%. For the first quarter 2013, G.E. posted $4.1 billion in earnings, up 14% from the year-ago quarter. The second quarter results will be released on July 19.
Given the above catalyst for growth, perhaps now is the best time to secure a position in General Electric. This is backed by recommendations of many analyst firms in Yahoo and Nasdaq. The recommendations are hold, buy, and strong buy. Not one advised a sell. So taking the cue from the experts and from the encouraging company developments, investing in General Electric would be a good choice.