Is General Electric Stock Growling for a Strong Buy?

 
on February 19 2013 10:45 AM
The company's logo is still visible on a closed General Electric Co. facility in Lynn
The General Electric Co.'s logo is still visible on a closed company facility in Lynn, Mass., on March 6, 2009. In a reversal of fortune, GE could be a little more industrial and a little less financial in its operations, should the company choose to slice and dice its GE Capital unit, as contemplated in a piece in the Wall Street Journal Sunday night. REUTERS

With shares of General Electric Company (NYSE:GE) trading at around $23.29, is GE an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

C = Catalyst for the Stock’s Movement

For all those GE shorts out there, it’s time to give up. While the economy’s recovery is blown out of proportion, GE’s recovery is 100 percent real. Perhaps not many shorts are reading this considering the short percentage is now down to just 0.70 percent. GE has been making all the right moves since the financial crisis of 2008/2009. There is still a lot of work to do, but GE is setting itself up in many different industries, and its financial footing has improved substantially. Therefore, if the economy were to falter once again, the blow wouldn’t be nearly as hard as last time. GE is involved in aviation, oil & gas, healthcare, 3-D printing, and much more. It’s also a company that wants to change the world through advanced manufacturing. Not many people have an interest in watching GE commercials on YouTube, but if you happen to take a look, you will see comments from engineering students stating that working at GE would be their dream job. That alone should tell you something about the brand. After all, there aren’t many companies that have a goal of getting a jet engine to talk to you in real time.

GE made many successful bets coming out of the financial crisis, especially with energy. GE knew that the only way these would be bad bets was if the world came to an end, or at least if the financial world came to an end. And if that were the case, then the bad bets wouldn’t matter anyway. A conversation with bad bets at that time could go in a whole different direction, but that’s not the focus here.

GE is selling its remaining its 49 percent stake in NBCUniversal. It appears as though GE doesn’t just know when to make good bets, but when to cut ties as well. The net of this sale will be $18.1 billion, of which $13.4 billion will be in cash. This is good news for investors. Instead of the originally anticipated $12 billion being returned to shareholders in 2013, that number will now be upped to $18 billion. This will be in the form of stock repurchases. Some investors would prefer to see increased dividends, but GE is already the industry leader in that area.

One of the few negatives for GE is that there has been a reduced revenue outlook due to a potential slowdown in the United States. But is this likely to make a significant impact in the stock price?

Let’s take a look at some important numbers prior to forming an opinion on the stock.

E = Equity to Debt Ratio Is Weak       

GE GE  http://wallstcheatsheet.com

The debt-to-equity ratio for GE is weak, but the company has been moving in the right direction when it comes to fiscal responsibility. 

T = Technicals on the Stock Chart Are Strong

GE has outperformed Honeywell International Inc. (NYSE:HON) and Emerson Electric Co. (NYSE:EMR) over the past year. GE also offers the most yield at 3.30 percent. Honeywell yields 2.30 percent, and Emerson Electric yields 2.80 percent.

GE GE  http://wallstcheatsheet.com/

At $23.29, GE is currently trading above all its averages.   

50-Day SMA

21.72

100-Day SMA

21.69

200-Day SMA

20.92

 

E = Earnings Have Been Steady              

Earnings have been steady throughout the years. Revenue hasn’t been as impressive, but the top-line does epitomize steadiness.

GE GE  http://wallstcheatsheet.com

When we look at the last quarter on a year-over-year basis, we see an increase in revenue and earnings. This is always a good sign.

GE GE  http://wallstcheatsheet.com/

Let’s take a look at the next page for the Trends and Conclusion. Is this stock an OUTPERFORM, a WAIT AND SEE, or a STAY AWAY?

T = Trends Support the Industry

GE is involved in so many industries that there is always likely to be a positive trend somewhere. If there is one company where you don’t have to worry about industry trends, it’s GE. Global economic trends are a different story.

Conclusion

GE has solid margins that are likely to improve, an impressive yield, a forward P/E of 12.66, and arguably more innovation than any other company in the world. This leads to more potential than any other company in the world. That’s a bold statement, but it’s also justifiable. The downside risk is still present due to an overextended stock market and overhype about an economic recovery. However, if you’re looking to invest in a great company long-term, then you’re not going to find many better options. GE is an OUTPERFORM.

Copyright Wall St. Cheat Street. All rights reserved.

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