Sunday, September 18, 2011

Is GE a Good Long Term Investment?

In 1892 General Electric was founded by Thomas Edison it was part of the 12 leading American Companies that made up the Dow Jones since inception and it is the only one remaining.  It is a conglomerate and a global titan.  In 2011 it was ranked one of the largest companies in the world, best global brand and most profitable.

In 2010 GE's earnings expanded by 15% and raised the dividend twice. GE's R&D spending will grow to 54% from 2008 to 2011.  More than 50% of the world's planes have GE engines. More than 60% of GE's revenue in 2011 will come from outside the U.S. Jeffrey Immelt stated that most of the engines GE sells may be sold overseas but they are manufactured domestically.  It has created 6,300 new jobs since 2009. GE aviation has invested much in R&D this will keep its earnings flat in 2011 but it does have a high backed up amount of orders and earning growth should return in 2012.

GE reported better than expected earnings last quarter and its stock rose to a day high of $19.53 in July 22nd.  Then came the summer jitters the debt worries and a S&P downgrade that proved to be a low blow to the U.S. and GE came tumbling down.  Its correlation with the S&P 500 has punished it throughout the summer yet it found support at $15 showing a better U.S. economy compared to the beginning of 2009 when GE sank below $10.  This also lets us see a better GE emerging one with less vulnerability to tail risk events and with plenty of cash on hand.  A once again high dividend paying stock in a low interest rate environment.

GE Capital has been restructured to a smaller more focused slice of the pie set up for growth in the next few years.

GE continues to lead in growth markets investing long term in economies such as Australia, Latin America, Canada, Germany and Russia. They recently announced an expansion in its position in Russia with two new ventures which will generate about $10 to $15 billion in sales.  Where it will sell gas fired power generated turbines, GE is also entering health care joint ventures in the fast growing Russian market.

GE is also expanding in China and India a colossal market in which over one billion people will be joining the middle class.  John Rice GE's most senior Vice Chairman was asked to move to Hong Kong to lead operations in the global market. It's the year of the rabbit and it is said that anyone having a rabbit as a friend can consider himself financially lucky.

Last quarter GE Healthcare grew by 8% and it is continuing to invest in healthcare with about $5 billion in the next few years in the fight against cancer which is one of the top 3 U.S. killer diseases.  GE is working on bringing innovation and breakthrough to oncology and individualized treatment.  They have started a healthymagination open challenge to aid in the screening and treatment of breast cancer.  It also entered a partnership to bring the latest screening technologies to under served parts of the world.  In this rough economy healthcare has been one of the few sectors that has continually added jobs and seen growth and innovation.

GE has positioned itself to see innovation and growth in the years to come.  Global investments in infrastructure are expected to reach $4 trillion in 2015.  GE has franchises in energy, healthcare, aviation, water and consumer products.

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