General Electric: Buy and Hold
April 25, 2008
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General Electric (NYSE: GE), one of the largest and most respected companies in the world, has seen its shares drop nearly 24% from its 52-week high of $42. In April alone, shares dropped from $38 to $32, a 16% decline precipitated primarily by continued weakness in the financial markets. GE’s Q1 2008 earnings, announced on April 11th, came in below both analyst and management expectations, missing the mark by nearly 14%.
Blood in the Streets
A certain investor once said that those who seek to invest intelligently should “buy when there’s blood in the streets.” Heeding this advice has served this particular investor well. In fact, it has made him the richest person in the world, and he goes by the name of Buffett. Warren Buffett. (Not to be confused with James Bond, although the similarities are striking.)
See, Mr. Buffett believes that the price of a stock both rises and falls faster than the value of the underlying business. Thus, when blood is spilled, as it has been for GE, it’s a pretty safe bet that it was an over-reaction.
Now, don’t get me wrong, the Q1 results were pretty bad. Net profit and earnings fell 4% and 12% quarter-over-quarter, respectively. CEO Jeff Immelt, who – as recently as early March – re-affirmed prior guidance, is being raked over the coals for the underperformance. But it wasn’t all bad. Revenues rose 8% from Q1 2007, and strong global growth – 22% – provided hope that it would weather a significant downturn in the US economy. So if there’s a silver lining to be found, strong global growth in the Infrastructure segment would be it.
A History of Excellence
But let’s take a step back and take a birds-eye view, if you will (or even if you won’t), of the global powerhouse that is GE. Throughout its 115 year history, GE has had its ups and downs but it also has consistently increased shareholder value. Through dividends, which have been increasing steadily since 1962, stock buybacks ($1 billion worth in Q1, 2008) and earnings growth, GE shareholders have been treated very well. The financial markets are in unchartered waters right now, but they will emerge from the crisis and so will GE. Will the next few quarters be rough for GE and the economy? Certainly. Will GE recover? Absolutely.
So What Should You Do?
GE currently boasts a 3.8% dividend yield and while it is unlikely this dividend will be raised in the next few quarters, there’s very little concern that it will be lowered. Sit back, collect the dividend, take up knitting, and in a few quarters when all this has blown over, GE will continue along the same path it has been for over a century. And you’ll have pocketed some seriously sweet dividend payouts.
In the interest of full disclosure, the author of this article does not hold any positions in any of the companies mentioned.
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[…] General Electric: Buy and Hold But let’s take a step back and take a birds-eye view, if you will (or even if you won’t), of the global powerhouse that is GE. Throughout its 115 year history, GE has had its ups and downs but it also has consistently increased … […]
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