The last time I wrote about General Electric Company (NYSE:GE) I stated, "I'm not going to layer into my position." Since the last article it dropped 8.32% versus the 1.55% drop the S&P 500 (NYSEARCA:SPY) posted. General Electric 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 January 17, 2014, the company reported fourth quarter earnings of $0.53 per share, which were in-line with the consensus of analysts' estimates. In the past year the company's stock is up 12.74% excluding dividends (up 15.93% including dividends), and is losing to the S&P 500, which has gained 18.6% 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 industrial sector of my dividend portfolio.
The company currently trades at a trailing 12-month P/E ratio of 16.87, 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 13.81 is currently inexpensively priced for the future in terms of the right here, right now. Next year's estimated earnings are $1.82 per share and I'd consider the stock inexpensive until about $27. The 1-year PEG ratio (2.46), which measures the ratio of the price you're currently paying for the trailing 12-month earnings on the stock while dividing it by the earnings growth of the company for a specified amount of time (I like looking at a 1-year horizon), tells me that the company is expensively priced based on a 1-year EPS growth rate of 6.87%. Below is a comparison table of the fundamentals metrics for the company for when I wrote all articles pertaining to the company.
EPS Next YR ($)
Target Price ($)
EPS next YR (%)
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 3.5% with a payout ratio of 59% of trailing 12-month earnings while sporting return on assets, equity and investment values of 3.1%, 16.6% and 5%, respectively, which are all respectable values. Because I believe the market may get a bit choppy here and would like a safety play, I believe the 3.5% yield of this company is good enough for me to take shelter in for the time being. Below is a comparison table of the financial metrics for the company for when I wrote all articles pertaining to the company.
Payout TTM (%)
Looking first at the relative strength index chart [RSI] at the top, I see the stock in oversold territory with a value of 33.03. I will look at the moving average convergence-divergence [MACD] chart next. I see that the black line is below the red line with the divergence bars increasing in height, indicating some bullish momentum should be coming soon. As for the stock price itself ($25.13), I'm looking at the 20-day simple moving average (currently at $26.39) to act as resistance and the 200-day simple moving average (currently at $24.43) to act as support for a risk/reward ratio which plays out to be -2.79% to 5.01%.
- The company is closer to IPO GE Capital. The company is within two months of the largely anticipated IPO for the unit which could be valued at more than $20 billion. Only 20% will be IPO'd while the remainder of the shares will be spun off to GE shareholders in 2015.
- Lion Air will buy A320 engines from GE. The Indonesian airliner has ordered 60 Airbus A320 engines in a deal worth $1.2 billion. GE's aviation unit is performing pretty well in the past year or so.
- The company buys Cameron's (CAM) reciprocating compression division. The deal was worth $550 million which expands the company's oil & gas offerings, another strong division of late for the industrial conglomerate.
Aerospace, Oil & Gas are performing very well for the company and is repositioning itself to become a more industrially focused company by doing away with the GE Capital business and that's why I think the 8% decline from the last time I wrote about the company is an overreaction. Fundamentally the company is inexpensively priced again based on future earnings but expensive on future growth potential even after the beating it has taken. Financially the efficiency ratios have increased a bit. On a technical basis I believe we are near the bottom of the individual stock story, but not the market. Due the inexpensive fundamentals, improving financial metrics, and the high yield I'm going to actually pull the trigger on this particular name in the face of this market pullback.
Disclaimer: This article is meant to serve as a journal for myself as to the rationale of why I bought/sold this stock when I look back on it in the future. 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, SPY. 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.