In this article I take a look at General Electric (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, price-book value, etc... 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.
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 (decrease exposure)
Company v. Industry(TTM)
- Return on Assets: 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.
According to the firm's financial statements, total assets decreased 1.3 percent in the first quarter of this year compared to the fourth quarter of 2011. The financial leverage ratio is 5.8.
Total revenue in the first quarter declined 8 percent compared to the year-ago quarter.
In the first quarter of 2012, earnings were high quality; however, cash from operations and investing wasn't enough to cover cash used in financing.
That said, the macro-economic risks from potential fiscal consolidation in the US and European Union could cause valuations to decline.
Some investors may want to protect long positions by buying put or selling call options.
Currently, there don't appear to be any long-term material legal risks.
Book value-share is decreasing; the decrease in book value-share is bearish.
The share price is increasing and is near a previous resistance level.
Price-sales is increasing, the enterprise is getting more expensive. Additionally, revenue-share is currently declining.
Price-book value is near its recent high and may decline in the coming months.
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.
The pace of job growth has slowed in recent months and may stabilize at low levels.
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.
European Union services PMI is declining and should increase in the coming months.
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.
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.