General Electric (NYSE:GE) has leading positions in power turbines, jet engines, diesel locomotives, and diagnostic imaging systems with $120B in sales of which about 60% is international. In our opinion, the stock now trades at an attractive valuation considering it has a high quality set of businesses with interesting future prospects. Shares have underperformed due to shrinking capital and power earnings, combined with weak cash flow in power and declining cash from dispositions in capital, which led to a dividend cut. We believe the power business will be challenged but most of its earnings decline is priced in today. Also, what the market misses is GE’s businesses have #1 or #2 market share in virtually every business and has a dominant installed base to service and sell new equipment. In our opinion, GE trades at an attractive multiple of normal earnings with a majority of businesses that earn high long-term returns on capital.
From Hotchkis & Wiley's Large Cap Value Fund 1st quarter commentary.
