GE is on the Ball: Set to Gain From a Nuclear Resurgence

Looking to diversify your commodity-heavy portfolio? Need to lighten up your exposure to financial stocks as interest rates are trending higher and higher? The conventional wisdom is that when the commodity boom starts to fizzle and interest rates start to shrink the financials' massive profitability, move to big-cap, high dividend paying stocks. Many are predicting just that scenario of the commodity boom's bust and lack-luster financial institution performance, and to be fair, it never hurts to be cautious (not to be confused with being delusional and paranoid). So, with that said, where is the smart money moving to? Well, recently one of the fattest large caps reported, and their quarter was good, despite some exposure to the US sub-prime melt-down and more importantly, the future of the stock looks good.

General Electric (GE) reported Q2 EPS (earnings per share) of $0.53, $0.01 better than consensus of $0.52. Revenue rose 12.1% year-over-year to $42.32 billion versus consensus of $42 billion. Adding to the rosy picture, GE raised its share repurchase program to $14 billion from $12 billion – always nice when company’s buy-back their own stock. And best of all in my opinion, GE’s financial group WMC sold off about $3 billion in non-prime loans, cutting its exposure to the market by about two-thirds. Nice – despite the subprime write-off, GE still posted a gain for the quarter.

Looking forward, GE should not be affected in a major way by the continuing US sub-prime mortgage situation, which in case you haven’t noticed, is a really bad place to have money tied up in. So, GE has successfully maneuvered around a really nasty mess, albeit taking a hit. Always nice when the other divisions pick up the slack, so much so that the stock exceeds expectations.

OK, enough about Q2, it’s over, it’s done – old news does not make money. Looking to the future, what I like is the fact that lots of money should be pouring into GE for the above mentioned reasons: investors looking to move away from exposure to commodities and financials in favor of big cap, dividend paying stocks. Secondly, I like the stock repurchase program which strengthens share price. Lastly, what I like are some of the strategic moves GE is making. For example, GE and Hitachi Ltd. (HIT) have recently launched a joint nuclear business.

The following from the Japan Times:

Hitachi Ltd. and General Electric Co. have launched a joint nuclear business to capitalize on rising demand for electricity and increasing concerns about carbon dioxide emissions from coal-fired plants.

John Krenicki, president and chief executive of GE Energy, said Monday at a news conference that nuclear plants produce virtually no carbon gases and reactors can take the place of aging power plants that rely on fossil fuels.

"We believe nuclear is going to step in and we're getting ready to execute that plan," he said.

Nuclear is going to make a big resurgence. Concerns for the radio-active waste storage and operational safety are going to be outdone by the cheap, clean energy that nuclear provides. This is especially true given that many alternative fuels and technologies such as ethanol depend on high energy in the first place to refine and produce. All signs point towards massive oil prices and political will to move away from fossil fuels, and, most powerful of all, it makes economic sense. GE is well poised to be part of this shift towards nuclear.

In conclusion, GE is a safe, conservative stock to add to your portfolio.

GE 1-yr chart

Disclosure: I do not own shares of GE. Do your homework before you buy a stock.