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General Electric: A Leader in all Markets

July 31, 2014 | About:

In this article, let's take a look at General Electric Company (NYSE:GE), a $257.11 billion market cap company, which sells products ranging from jet engines and gas turbines to consumer appliances, railroad locomotives and medical equipment.

Key Drivers

The company has several key drivers that make the company able to generate good returns in many of its markets.

It plans to invest large amounts of money in expanding businesses, having the ability to improve operating efficiencies, as well as the ability to switch to other products. Although the business continues to be correlated with industrialization and GDP, the firm has changed its focus and now has focuses on clean-energy products, such as wind and gas turbines. Middle-market commercial and industrial loans, equipment leasing, and aircraft leasing are still areas of focus.

Strong International Presence

With operations in more than 100 countries, General Electric is one of the largest technology and financial services corporations in the world. The firm expects to have an important growth in the near future, in countries such as China. For example, energy demand in Algeria is estimated to grow by 14% annually, so it decided to supply the country with power generation equipment, signing billionaire contracts.

Strong Dividends

General Electric shows its commitment to return cash to investors in the form of dividends as it generates healthy cash flow on a regular basis. Since 2009, it has raised its dividend six times, to a current quarterly rate of $0.22 per share. The current dividend yield is 3.32% which we consider good enough to protect purchasing power.

Revenues, Margins and Profitability

Looking at profitability, the revenue growth (2.5%) has outpaced the industry average. Earnings per share have improved by 12.9%in the most recent quarter compared to the same quarter a year ago.

During the past fiscal year, the firm increased its bottom line by earning $1.47 versus $1.38 in the prior year. This year, Wall Street expects an improvement in earnings ($1.67 versus $1.47).

Finally, let´s compare the best measure of performance for a firm's management: the return on equity. The ROE is useful for comparing the profitability of a company to that of other firms in the same industry.



ROE (%)


General Electric



3M Company



Carlisle Companies Incorporated



Danaher Corp



Raven Industries Inc.


Industry Median


The company has a current ROE ratio of 10.00% which is lower than its peers but higher than the industry median. It is very important to understand this metric before investing and it is important to look at the trend in ROE over time.


Relative Valuation

In terms of valuation, the stock sells at a trailing P/E of 20.9x, trading at a discount compared to an average of 24.1x for the industry. To use another metric, its price-to-book ratio of 1.9x indicates a premium versus the industry average of 1.76x while the price-to-sales ratio of 1.8x is above the industry average of 1.09x. At that PE the stock is relatively undervalued and seems to be an attractive investment relative to its peers.

As we can see in the next chart, the stock price has an interesting upward trend in the five-year period. If you had invested $10.000 five years ago, today you could have $25.069, that is a 20.2% compound annual growth rate (CAGR).


Final Comment

The industrial conglomerates industry includes big firms that operate in several markets and draw a majority of revenue from overseas demand.

General Electric continues to focus on countries with higher growth potential. As outlined in the article, it remains well positioned for growth. So in this opportunity, I would recommend fundamental investors to consider this stock for their long-term portfolios.

Hedge fund gurus like John Buckingham (Trades, Portfolio), Ray Dalio (Trades, Portfolio), Jim Simons (Trades, Portfolio), David Dreman (Trades, Portfolio), Steven Cohen (Trades, Portfolio), Jeff Auxier (Trades, Portfolio), Murray Stahl (Trades, Portfolio), Tom Gayner (Trades, Portfolio), Bill Frels (Trades, Portfolio), Chris Davis (Trades, Portfolio) and Signature Select Canadian Fund (Trades, Portfolio), Manning & Napier Advisors, Inc. and NWQ Managers (Trades, Portfolio) added this stock to their portfolios.

Disclosure: Omar Venerio holds no position in any stocks mentioned

About the author:

Omar Venerio is capital markets, derivatives, corporate finance and financial management professor. He is passionate about the stock market and providing independent fundamental research and hedge fund and insider trading-focused investigation.

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