Stock Of The Week: The Trouble With General Electric (GE)

Apr. 20, 2012 11:05 AM ETGE
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Contributor Since 2012

I am an investment professional currently working for the amazing Wall Street Bad Boys.

General Electric (GE) has just announced earnings that exceeded Wall Street's pretty low expectations for this earnings season. Specifically, industrial revenue grew 14% while overall revenue fell 8% year-over-year as NBC Universal is no longer included in the revenue contribution. Without NBC Universal revenue in the prior year period, revenue actually grew 4% and beat the average of Wall Street expectations. Net profit also fell 12% to $3.0 billion verses $3.4 billion in the year-ago quarter.

As General Electric (GE) stock, it's up about 8% since the start of the year but it's also down about 5% over the past year, 45% over the past five years and 42% over the past ten years. Nevertheless, Google Finance has General Electric (GE) up over 1,500% for the past thirty years with most of the gains coming from Jack Welch's days at the helm.

And now for a quick disclosure: I have owned a few shares of General Electric (GE) since the late 1990s and I have thought about unloading them as its unlikely the stock will ever see what I paid for them in near future (I am down over 50%...) - despite the 3.5% dividend yield. What investors need to remember about General Electric (GE) is that it's not just a manufacturer of everything from aircraft engines to household appliances but it's also the financer for the customers that purchase its products.

In fact, I remember learning in business school years ago that General Electric (GE) was making more money on financing (as in GE Capital) than on actually making things - meaning the stock is also a good example of everything that's gone wrong with the US and the US economy (I won't comment on the controversy over how much, if any, US taxes GE has been paying or the fact that much of Jack Welch's management playbook has gone out of style).

However, the New York Times has pointed out that this earnings report from General Electric (GE) shows that the company is making progress moving back to its industrial roots but earnings growth is still dependent on finance.

Nevertheless, General Electric (GE) remains a leading indicator for the health of the US economy, industrial and transportation stocks plus it was also a leading indicator of the 2008 financial crisis. Moreover, General Electric (GE) is a global company with a huge presence in emerging markets like China (at least 60% of its revenues come from outside the US) - meaning it's also a good bellwether for the health of the global economy or global recovery.

This means that it's probably a good idea to add General Electric (GE) to your "My Portfolio" list - even if you don't own or trade the stock. After all, a series of higher highs or lower lows for General Electric (GE) could be a good indicator of whether or not the Dow will stay above the 13,000 level or fall back down below that level.


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