Stock Analysis: General Electric 19 comments
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In April, GE shocked the U.S. stock market by reporting a 6% drop in first quarter earnings and slashed its 2008 earnings outlook. During its quarterly conference call, Chief Executive Jeff Immelt blamed the miss on Bear Stearns near bankruptcy. "We had planned for an environment that was going to be challenging...[but] after the Bear Stearns event, we experienced an extraordinary disruption in our ability to complete asset sales," Immelt said. "We are not counting on the business getting any better, vis-à-vis...the U.S. consumer," Immelt said. "We have actually allowed for a worsening of the U.S. consumer in our GE Money business. So I think that is the way to think about the U.S. and the U.S. economy." After the announcement, GE was pummeled in the market, dropping nearly 13% to $32.05 in heavy trading. Since then it has continued to slide closing Friday at $30.02. GE is widely acknowledged as one of the best managed companies in the world. For long-term investors the circumstances provide a good opportunity to initiate or add to a current position. I added to my position in early May and will continue to add to it as my allocation and GE's valuation will allow.
Linked here is a PDF copy of my detailed analysis of General Electric Company (GE) (alt.1, alt.2). Below are some highlights from the analysis:
Company Description: General Electric (GE) is a diversified technology, media and financial services company. With products and services ranging from engines, power generation, water processing to medical, financing, media and industrial products.
Fair Value: I consider four calculations of fair value: 1) Avg. High Yield Price, 2) 20-Year DCF Price, 3) Avg. P/E Price and 4) Graham Number. GE is trading at a discount to 1) and 3) above. If I exclude the high and low valuation, and average the remaining two valuations, GE is trading at an 8.2% discount. A Star is added since GE is trading at a fair value.
Dividend Analytical Data: In this section I consider five factors: 1) Rolling 4-yr Div. > 15%, 2) Dividend Growth Rate, 3) Years of Div. Growth, 4) 1-Yr. > 5-Yr Growth and 5) Payout 15% of avg. GE earned one Star in this section for 3) above. GE has paid a dividend since 1899 and has increased its dividend for the last 20+ years.
Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account [MMA]? This section compares the earning ability of this stock with a high-yield MMA. Two items are considered: 1) NPV MMA Diff. and 2) Years to >MMA. GE earned one Star in this section for 2) above. If GE grows its dividend at 7.8% per year, it will only take 4 years to equal the long-term average money market rate of 4.61%. GE's NPV MMA Diff is less than the $10,000 I prefer. However, since GE is a Blue-Chip company with a long track record of success, I am comfortable with its NPV MMA Diff of $5,862.
Other: GE is a member of the S&P 500, an Aristocrat and an Achiever.
Conclusion: GE earned a Star in the Fair Value section, earned a Star in the Dividend Analytical Data section and earned a Star in the Dividend Income vs. MMA section for a net total of 3 Stars. This rates GE as a 3-Hold.
Disclosure: At the time of this writing, I owned shares of GE (3.2% of my Income Portfolio).
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This article has 19 comments:
Too much conversation and no action.
I do not need the money for 20 plus years, I am 24 and used my savings to buy this stock. I will reinvest the dividends. I still drive my 96 corolla.
ge in sweet spot for energy conservation and infrastructure. sold off sub-prime mtg business last year and no auto loans in US. 50% + sales int'l moving to 60% in near future.
should get a good price for appliance business from int'l company benefitting from currency depreciation of $.
The range of consumer products here:
www.ge.com/products_se...
GE probably soared for awhile by making a deal with makers of manufactured housing. Those consumers have no options for the appliances they get and they are all GE. Have you seen the thousands stored that were for the hurricane victims. GE appliances were probably in every one of those disasters. The ones that people actually lived in were junked afterwards. Think about that for a minute.
I once had a house with a GE dishwasher. A leak got it replaced with a floor model competitor's brand. (We were selling the house.) You had to put your hand on it to tell if it was running. Hello, what a difference. We had always waited till during the night to run the GE when we would be far away from it.
I'm not completely ignorant but don't care to argue the point at my age so give an old timer a little slack and don't be too harsh on your combacks. I'm just curious if their product type can make a difference in their continued staying power.
Oversold, low downside risk, significant insider purchases, dividend yielding an all-time high.
Signed a Concerned Retired Stockholder