The ability to weather a crisis is one of the distinguishing characteristics of the blue chip stocks we recommend. This multinational, one of the last survivors of the original 12 Dow Jones stocks of 1896, suffered a sharp setback during the financial crisis of 2008-2009. But its deep resources and diverse industrial base have allowed it to stage a recovery.
General Electric Co. (New York symbol GE; www.ge.com [1]) is one of the world’s largest manufacturers. It makes equipment for generating and distributing electricity, such as turbines (31% of revenue, 32% of earnings); aircraft engines (13%, 17%); health care equipment, such as medical scanners (13%, 14%); home appliances and lighting (6%, 1%); and locomotives (3%, 4%).
Following the 2008/2009 financial crisis, the company scaled back the activities of its GE Capital subsidiary, which provides loans and other financial services to GE’s customers. This business now accounts for 34% of GE’s revenue and 32% of its earnings.
In 2011, GE merged its NBC Universal entertainment operations into a 49%-owned joint venture with Comcast Corp. (Nasdaq symbol CMCSA). Because GE owns less than 50% of this venture, it no longer consolidates its results with its overall revenue.
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Blue chip stocks: GE in line for dividend increase
The company is also using its rising earnings to expand its main industrial businesses. In 2011, it spent a total of $11.2 billion buying companies that make engines, pumps, valves and other machinery. These new businesses contributed $4.6 billion to GE’s 2011 revenue.
In the three months ended March 31, 2012, GE’s revenue fell 8.2%, to $35.2 billion from $38.3 billion a year earlier. However, if you adjust for the sale of NBC Universal in the year-earlier quarter, revenue rose 4.4%.
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GE was one of the original Dow Jones stocks in 1896, has been a household name for many decades and captured even more publicity under celebrity CEO Jack Welch, author of “Winning.” Which of today’s stocks do you think will show the same resilience and still be around a century from now?
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Earnings fell 4.3% in the quarter, to $3.3 billion from $3.4 billion. Earnings per share were unchanged at $0.31 on fewer shares outstanding. If you exclude a gain on the sale of NBC and other unusual items, earnings per share jumped 17.2%, to $0.34 from $0.29.
The debt is $11.7 billion, or a low 6% of GE’s market cap. The company should earn $1.45 a share in 2012. The stock trades at 13.1 times that estimate. GE’s improving outlook should also let it increase its $0.68 dividend, which yields 3.6%.
In the latest edition of Wall Street Stock Forecaster [3], we look at whether GE’s acquisitions will pay off. We also examine whether GE can sustain its recovery and keep its share price rising. We conclude with our clear buy-hold-sell advice on the stock.
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