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Consistent Performance

GE is one of the market's most consistent performers. At $35, it boasts an attractive 3.5% yield and trades at a P/E ratio slightly above 16, below its long term average. Given that GE is well positioned (through its diversification and global operations) to weather a slowing economy, its shares may outperform the broader market. The company has a market cap of 335 Billion, and for the past five years, has steadily increased its revenue YoY, earnings per share, dividends and per share book value, yet its share price has gone literally nowhere.

GE's main segment is its financial segment, so it may be a stretch to equate GE's troubles with the broader economy at large. The earnings miss was largely predicated on writedowns and missed targets in the financial segment. But the healthcare segment also disappointed significantly, making it difficult to dismiss this as solely a credit crunch phenomenon.

My sense is that they would do well to divest themselves of NBC, which is poorly run from my view in the cheap seats (just go to the CNBC website, which can't seem to update podcasts, or MSNBC, which can't stream video properly). The financial segment seems a bit of a black box. Healthcare apparently is vulnerable and faces regulatory issues. Everyone loves their infrastructure and energy segments but apparently those can't pull the train.

Immelt had been under a low-pressure cooker to do something about GE's stock price; after this miss, I imagine the heat will be turned up and if things don't turn around soon, his position will be threatened, which would be a negative in my mind. But at some point, the stock's got to move up or he will be gone.

The current turbulence in 2008, is just noise in a crazy market. In the intermediate to long term, GE will grow its business and increase its dividend at a steady pace. My quick DCF analysis shows GE is undervalued by at least 20%. Will this stock double in the next 2 years? Probably not but if they can get back on track, there’s no reason we won’t see $40 again in the relatively near future and if the market really tanks, you’ll get a chance to buy a nice dividend yield and wait it out. Even in a “post-American-superpower” world, GE will be a prominent player so we should have some cushion against the weakening dollar.