Analysis And Valuation Of General Electric

| About: General Electric (GE)

In this article I take a look at General Electric (NYSE:GE), the industrial conglomerate that may offer investors upside potential that outweighs the risks.

We'll use the management effectiveness ratios, book value-share, price-sales and price-book value to evaluate General Electric.

Additionally, macro-economic indicators are provided at the end of the article. As part of investment analysis, analysts should consider both the company fundamentals and the macro-economic landscape. The macro-economic picture in the U.S. is deteriorating. In Europe, the economy is currently contracting.

European officials are working towards recapitalizing the banks in Spain. Also, European officials are investigating pro-economic growth policies that would reduce the sovereign risks the region is facing. Until pro-growth policies are implemented, and Spain's banks are recapitalized, sovereign risks remain. Diversified investors are compensated for bearing systemic risks.

Rating System

Buy - Be long

Neutral - No position

Sell - Be short

The ratings, research and analysis in this article should be considered as starting point for further research.

General Electric - Buy

Company v. Industry

  • Return on Assets (NYSE:TTM): 1.98 v. 2.39
  • Return on Investment : 2.47 v. 4.05
  • Return on Equity : 10.66 v. 7.31

Based on the management effectiveness ratios, management is ineffective compared to its industry peers. Additionally, book value-share is declining.

That being said, based on the valuation, the brand, and the relative strength compared to the market, investors should accumulate shares of General Electric.

Although, the macro-economic risks from potential fiscal consolidation in the US and European Union could cause valuations to decline farther.

Some investors may want to protect long positions by buying put or selling call options.

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Book value-share is decreasing; the decrease in book value-share is bearish.

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The share price has been increasing; however, recently the share price has declined some.

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Price-sales is declining, the enterprise is getting cheaper. Additionally, revenue-share is currently declining.

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Price-book value is off of its recent high; however, it is still above the 2011 low.

Macro Environment

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ISM Non-manufacturing PMI is declining; the decline in non-manufacturing PMI is considered bearish. ISM non-manufacturing PMI should stabilize in the coming months.

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The pace of job growth has slowed in recent months and may stabilize at low levels.

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CB consumer confidence is increasing and may decline in the coming months. The Expectation Index and the Present Situation Index both declined, according to the latest report.

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European Union services PMI is declining and should increase in the coming months.

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European Union manufacturing PMI is declining and should increase in the coming months. A silver lining from the current release of the report is that the pace of decline in Italian manufacturing is slowing. Additionally, the depth of the contraction in manufacturing has yet to reach the depth of the contraction from the financial crisis in 2009.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Additional disclosure: Disclaimer: This article is not meant to establish or continue an investment advisory relationship. Before investing, readers should consult their financial adviser. Christopher Grosvenor does not know your financial situation and ability to bare risk and thus his opinions may not be suitable for all investors.