General Electric (NYSE:GE) is one of the Dow Jones 30 companies that do not valuate well. It certainly is not the company it used to be and has little chance of a future recovery.
GE is currently selling for about $18.60 and has a recent high of $20.40. It is sporting a very high dividend yield of 3.6%. Investors are not likely to be rewarded with share price appreciation in the coming weeks or perhaps months. The price advance from October's low of $13.8 to now is impressive but not convincing.
I wrote an opinion of General Electric in February 2011.
History of Price: Measuring from late 2007 the company was selling for $36, and then fell to $5, in early 2009. That is an 86% drop in price. With the powerful bull market that ensued, GE has only been able to grow to a recent $21. It is my opinion that this price growth is unacceptable for a world-class company. The below, 20-year chart tells a story that you may want to ponder. This chart compares GE with the Standard & Poor's 500 ETF (NYSEARCA:SPY). I use this ETF Index to get important perspectives about a company that I am valuating. The first is, how GE tracks the Index in bullish and bearish market time frames. The second is a statistical measure of percentage gain and loss during bullish and bearish market time frames. Trends are a very helpful tool when investing wisely.
My reading of this chart offers a couple of important details that I believe are often overlooked. Technically, the repeating declining tops of GE beginning in 2000 followed by 2007 to date is very negative. It has under performed all Indices for too many years. Its declines in price during bear markets, percentages wise, are also much too severe.
Fundamental - Valuation:
Current Valuation of General Electric Company
plus 6% / minus 20+% from the high.
15.8 - about average for all stocks in my universe.
Forward P/E (fye 12/31/13)
0.98 - low
Price to Sales:
1.44 - ok
Price to Book:
1.69 - low
(minus) - 27%
Comments: These are not strong Valuations and Target Price Projections. When I do further fundamental studies, the valuation simply does not improve. Projected earnings growth for GE will decline from current levels by about 33% in 2013 and almost 50% in 2014. Very average technical and consensus opinion analysis suggests that GE will continue to be a poor performer. Investing in GE at this time, or even holding, definitely is not wise.
Source of raw data: Yahoo Finance.
Notes for the above table: Target price is calculated and produces a probable range of the current price over the coming one to three months. Valuation divergence is calculated and produces a plus or minus percent of price over the following one to three months after a given bullish or bearish inflection point.
Earnings Chart (click to enlarge)
Regarding the above chart, please note the following: The earnings/share remains well below the 2007 level. The p/e ratio is flat, and the volume is diminishing. These are not supportive facts to foster holding GE in your portfolio.
The income statement (Source: MorningStar), click here. I have reviewed this income statement and do not find anything to take issue with.
The balance sheet (Source: MorningStar), click here. I have reviewed this balance sheet and do not find anything to take issue with.
It is clear from the above price charts that there is a lingering and severe problem with General Electric and very likely its management. Technical indicators are in the midst of breaking down. This is my initial warning that prices will be falling in the coming weeks and perhaps beyond.
General Electric is a company that is trading in sync with its fundamentals and technical chart. That normally means it is in favor with my analytics. However, the prospect of future price appreciation is questionable. I suggest that holding cash is a prudent alternative.
I recommend your taking a few minutes to study my 20-year chart. When buying or selling, taking a longer-term view of a security's price history is very important.
GE, like so many other large-cap companies, is no longer the company it used to be. This is a warning about buying or holding General Electric Company.
I am bearish on both the economy and the general market. My recent Instablog postings are focused on securities that should not be held in your portfolio. It is important for you to understand that holding cash during questionable time frames is a wise choice. (This is definitely a 'questionable' time frame). This coming Saturday, GE will be included in my weekly Instablog posting.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.