Is GE As Solid As Its 100 Year History?

Jul. 5.14 | About: General Electric (GE)


GE has been in recovery mode since the subprime crisis.

Recent acquisition gives GE bigger international footprint and creates synergies.

GE once again a safe bet for conservative/dividend investors.

For the most part, we all know General Electric (NYSE:GE).

It's a brand that's been around 1892 and one that has been synonymous with American innovation and industry. General Electric was one of the original 12 Dow Components selected in 1896 and remains the only company from that period in time that currently remains as a Dow Component. The company has 122 years of public ownership behind it, and has been a staple in conservative and value portfolios since its inception.

The company is comprised of many sub-divisions, including GE Capital, GE Oil & Gas, and GE Healthcare, among others.

Of late, with the questions surrounding the direction of the markets, people have been looking for safe havens for their profits that they've yielded during the duration of this bull market. Investors have chosen to separate from investments in speculative stocks with high multiples and to once again focus on the traditional dividend paying value stock.

Which leads value and dividend investors to question, "Should General Electric continue to be a part of my conservative-style portfolio?" The answer to that question, QTR thinks, is yes.

General Electric stock has been on a slow and steady uptrend since it was affected by the market crash that took the entire market down after the 2007 sub-prime crisis. Over the last two years, the stock has nearly added 50% in value for investors, on top of the dividends that the company offers. The company appears to be in a defined upward trend, despite being off roughly 5% for 2014 so far.

The company currently has a backlog of goods and services that is the highest that it's ever been, standing at $244 billion. Companies with backlogs of business, like Tesla (NASDAQ:TSLA) and Smith and Wesson (NASDAQ:SWHC), generally give off a sense of security for investors, as you know that demand is exceeding supply; hopefully not so much that it's detrimental to the business. A "healthy" backlog can be a great thing, especially for a company like General Electric.

General Electric's bid for French energy business, Alstom (OTCPK:ALSMY), finally went through after months of speculation. Seeking Alpha reported:

  • After receiving the French government's blessing on Friday, General Electric's improved bid has been officially accepted by Alstom's board. The approval marks an end to the bidding war between GE and Siemens (OTCPK:SIEGY)-Mitsubishi (OTCPK:MHVYF).
  • The closing of the deal is still contingent upon the French government finding an agreement with Bouygues (OTC:BOUYF). The former wishes to buy a 20% stake in Alstom before allowing GE to buy the group. After the French state purchases its 20% stake, Alstom will be left as a holding company, paving the way for three 50-50 joint ventures with GE.
  • Once the deal is closed, Alstom will then buy GE's train signaling business.
  • The approved offer still values the power equipment company at $17B, but prices the Alstom investment in the joint-ventures at $3.4B.

The deal creates significant mutually beneficial territory for both companies and helps General Electric increase its footprint overseas. These types of acquisitions, combined with General Electric's recent cost cutting initiatives are working together to position the company into an attractive position for investors.

General Electric is currently offering a 3.3% annual yield, which is toward the higher end of most dividend paying stocks. For comparison, Boeing offers a yield of 2.16%, Apple offers a yield of 2.04% and McDonald's offers a yield of 3.16%.

General Electric trades at a forward P/E ratio of 14.59 and for fiscal 2013 ended the year with a book value per share of $13.15. The company has a solid balance sheet, with $88.56 billion in cash to continue its business with. The company's foundation is as solid as its hundred year history as a publicly traded security.

As GE looks to solidify its latest acquisition, spin off some of its non-core businesses and assets, it would seem that General Electric remains a safe growth bet for dividend and conservative investors.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.