Be Patient On GE, The Price Should Come In Again

Oct. 2.13 | About: General Electric (GE)

General Electric (NYSE:GE) is a diversified technology and financial services company operating in the segments of aircraft engines, power generation, industrial products, water processing, household appliances, medical imagine, and business and consumer financing. On July 19, 2013, the company reported second quarter earnings of $0.36 per share, which beat the consensus of analysts' estimates by $0.01. In the past year the company stock is up 6.43% excluding dividends (up 9.72% including dividends), and is losing to the S&P 500, which has gained 17.64% in the same time frame. With all this in mind I'd like to take a moment to evaluate the stock on a fundamental, financial, and technical basis to see if it's worth buying more shares of the company right now for the industrials sector of my dividend growth portfolio.

Fundamentals

The company currently trades at a trailing 12-month P/E ratio of 17.26, which is fairly priced, but I mainly like to purchase a stock based on where the company is going in the future as opposed to what it has done in the past. On that note, the 1-year forward-looking P/E ratio of 13.36 is currently inexpensively priced for the future in terms of the right here, right now. Next year's estimated earnings are $1.81 per share and I'd consider the stock inexpensive until about $27. The 1-year PEG ratio (1.92), which measures the ratio of the price you're currently paying for the trailing 12-month earnings on the stock while dividing it by the earnings growth of the company for a specified amount of time (I like looking at a 1-year horizon), tells me that the company is fairly priced based on a 1-year EPS growth rate of 8.98%.

Financials

On a financial basis, the things I look for are the dividend payouts, return on assets, equity and investment. The company pays a dividend of 3.14% with a payout ratio of 54% of trailing 12-month earnings while sporting return on assets, equity and investment values of 2.1%, 11.5% and 2.8%, respectively, which are all respectable values but nothing to go writing home about. Because I believe the market may get a bit choppy here and would like a safety play, I believe the 3.14% yield of this company is good enough for me to take shelter in for the time being.

Technicals

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Looking first at the relative strength index chart (RSI) at the top, I see the stock muddling around in middle ground territory with a value of 55.45 but with flat trajectory, which says nothing in of itself. I will look at the moving average convergence-divergence (MACD) chart next and see that the black line is descending and about to cross below the red line with the divergence bars decreasing in height to the downside, indicating the stock has downward momentum. As for the stock price itself ($24.17), I'm looking at $24.94 to act as resistance and $22.79 to act as support for a risk/reward ratio, which plays out to be -5.7% to 3.19%.

Recent News

  1. The company obtained a $1 billion order to supply Vietnam Airlines with engines for a fleet of Boeing (NYSE:BA) Dreamliners.
  2. In an effort to invest nearly $1 billion in Turkey, CEO Jeff Immelt says the company has already spent $515 million on turbines for a wind farm and power plant, and money spent to kickoff the production of PowerHaul locomotives. These investments should increase the Turkish manufacturing efforts and reduce their dependency on imports.
  3. The company obtained a $1.9 billion order to supply Algeria with 26 gas turbines for six power plants.

Conclusion

With GE recently ranked in the top ten of the world's most valuable brands, I believe the company is inexpensively valued based on future earnings. Financially, the dividend payout ratio is middle of the road based on trailing 12-month earnings. I don't doubt management will be able to continue to increase the dividend going forward and at double digit clips. Based on future earnings the dividend payout ratio goes down to around 42% (if the dividend is kept steady). The technical situation of how the stock is currently trading is telling me we might be seeing some downward pressure in the immediate future. The stock is inexpensive on valuation, has great dividend growth potential, and has increased orders in its ailing power segment. It's because of these reasons I will layer into a position here because I know I can get it at a cheaper price soon due to the technical levels.

Disclaimer: These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!

Disclosure: I am long GE. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.