- GE stock fell only modestly during the last downturn
- The restructuring is complete, with the company well-positioned in the evolving Internet of systems market
- A 3.2% yield makes this a safe bet
General Electric (NYSE:GE) got hit in the downdraft, but it was not hit badly, and now looks poised to rally.
At a price of about $28.59 GE stock is down less than 10% from the level at which it ended 2015. Given the behavior of the rest of the market, that is not bad.
GE will be reporting its Q4 2015 earnings today before markets open. The consensus in Wall Street is for GE to report non-GAAP EPS of $0.50 down from $0.56 that the company reported during the previous year's comparable quarter. GE has delivered an earnings beat or met the estimates in last four quarters. The question is can it continue its performance? How good is GE stock for long term investment?
GE looks set to be a big winner from the end of sanctions on Iran, with its energy, power systems and health care operations all standing to reap some big orders. The ongoing restructuring of the company has continued, with GE Capital spun out late last year, the purchase of Alstom’s power systems finally approved, and the appliance operations sold to Haier, a Chinese company, early this year at a price of $5.4 billion, better than Electrolux was prepared to pay last year. (That deal was killed by regulators.)
GE stock’s recovery from the Great Recession had been slow and tortuous. It actually fell below $10 during the worst of those times, but it got to $20 by early in 2011. It hovered in the $25 range through 2014, and finally broke through last year – all the way to $30. It hovered near that level through all of 2015.
GE’s move to Boston, ostensibly for tax reasons, (although the idea of moving to Massachusetts to save on taxes is counter-intuitive), puts the focus on GE’s health care assets, where it can earn more from hospitals even while cutting their costs and improving outcomes.
In the present market, GE also represents safety with operations well-poised to benefit from the next recovery. The story is told in recent commercials, where a young programmer named Owen (possibly for Owen Young, GE chair in the 1920s and founder of RCA), defends his career choice before skeptical friends and family, who don’t yet understand the growing links between technology and industrial equipment.
By positioning itself at the heart of the industrial economy, GE also puts itself at the heart of the Internet of Things, and the Internet of Systems that will follow it. It’s the companies that control the big machines that will control this next phase of the Internet when big things have to be done, requiring enormous transformations in the way we live and work. This is something I have personally been writing about since 2003. The Internet of Things is rapidly evolving into an Internet of Systems – with factories, hospitals and transport networks all ready to be made more efficient with wireless sensors and networks that can tell that changes must be made before failure occurs.
GE is a stock you buy on weakness and hold for the long term. It is not a trade. You have good prospects, good positioning, and a dividend that, at the current price, is worth 3.2%. It won’t make you rich, but it’s not a gamble, either.