general electric

Most power plants are located near big cities to keep transmission costs down. However, wind farms tend to be in remote areas with steady winds. Growth in wind power will force utilities to expand their electrical-power grids. That should lead to higher sales for transmission-equipment suppliers, such as General Electric and ABB. GENERAL ELECTRIC CO. $12 (New York symbol GE; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 10.6 billion; Market cap: $127.2 billion; Price-to-sales ratio: 0.8; WSSF Rating: Above Average) is one of the world’s largest makers of industrial equipment. Products include aircraft engines, medical-imaging scanners and locomotives. GE is also a major supplier of electrical infrastructure equipment, such as turbines, voltage regulators and fuses. These accounted for 21% of its 2008 revenue, and 23% of its profit. Moreover, as a leading maker of windmills and nuclear-power plants, GE is in a good position to profit from new environmental rules that limit greenhouse-gas emissions....

GENERAL ELECTRIC CO. $12 (New York symbol GE; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 10.6 billion; Market cap: $127.2 billion; Price-to-sales ratio: 0.8; WSSF Rating: Above Average) is one of the world’s largest makers of industrial equipment. Products include aircraft engines, medical-imaging scanners and locomotives. GE is also a major supplier of electrical infrastructure equipment, such as turbines, voltage regulators and fuses. These accounted for 21% of its 2008 revenue, and 23% of its profit. Moreover, as a leading maker of windmills and nuclear-power plants, GE is in a good position to profit from new environmental rules that limit greenhouse-gas emissions. In the three months ended June 30, 2009, GE’s revenue fell 16.6%, to $39.1 billion from $46.8 billion a year earlier. Revenue fell 29% at GE Capital, the company’s struggling finance business, but just 7% at its industrial operations. Earnings fell 48.4%, to $2.9 billion, or $0.26 a share, from $5.6 billion, or $0.54 a share....

You need to look at each conglomerate on a case-by-case basis. Here are some examples: Power Financial holds majority interests in Great-West Lifeco and Investors Group. We see both Great-West and Investors Group as buys. However, Power Financial also has a large stake in Pargesa Holding S.A. of Europe. Pargesa, in turn, has large interests in a group of major European media, energy, utilities and specialty minerals companies. We don’t have the same confidence in these holdings as we do in Great-West Lifeco and Investors Group. So we think investors should stick with Great-West and Investors Group — the highest-quality segments of Power Financial’s holdings. We don’t recommend Power Financial....

Desalination is the process of removing excess salt and other minerals from seawater. It’s also used where saltwater has entered underground fresh-water aquifers. Right now, there are more than 13,000 desalination plants operating in over 120 countries. About three-quarters of them are in the Middle East. That’s because it’s very expensive to build desalination plants, so they are only really cost-effective where there is no fresh water. When fresh water is available, it can be pumped up to 1,600 kilometres and still cost less per litre than water from a desalination plant. Desalination may become more cost competitive over the longer term, however. As the world’s population rises and becomes more prosperous, demand for water for drinking, irrigation and industrial uses will exceed the amount available from natural sources....

VERIZON COMMUNICATIONS INC., $29.61, New York symbol VZ, plans to merge parts of its local-phone operations in 14 states with those of Frontier Communications Corp. (New York symbol FTR). As a result, Verizon shareholders will get one Frontier share for roughly every 4.2 Verizon shares. The company will finalize the exact exchange ratio just prior to the merger. This is a tax-deferred distribution, so investors will only be liable for capital-gains taxes on their new Frontier shares when they sell them. Verizon shareholders will control 68% of the new company. Verizon itself will get $3.3 billion in cash and debt securities. It will probably use the cash to pay down its $55.7-billion long-term debt, which is equal to 66% of its market cap. The assets that Verizon will spin off mainly consist of 4.8 million land lines in rural areas. As of March 31, Verizon had 35.2 million land lines in 25 states. The deal, which will probably close sometime next year, will make Frontier the fifth-largest local phone service provider in the U.S., with 7.1 million lines in 27 states....

We still think high-quality mutual funds with a long-term focus will beat stock-market indexes over time. If funds invest as we advise — sticking with well-established companies and spreading their assets across the five main economic sectors — they will likely lose a lot less than the indexes during a significant market downturn. That’s because big market slides are particularly hard on the stocks that were the most popular during the preceding rise, and our approach avoids excessive investment in these companies. In contrast, index funds do tend to load up on the hottest, most popular stocks as they rise. That’s because these stocks make up a growing proportion of the index as they increase in value. The most recent example is Potash Corporation of Saskatchewan, which, propelled by soaring fertilizer prices, had the highest market capitalization on the Toronto exchange last June. The shares have since dropped 54%....

S&P DEPOSITORY RECEIPTS $92.14 (American Exchange symbol SPY; buy or sell through brokers) are commonly called “Spiders.” The fund holds the stocks in the S&P 500 Index, which consists of 500 major U.S. stocks that are chosen based on their market share, liquidity and industry group.

The index’s 10 highest-weighted stocks are: Exxon Mobil, Procter & Gamble, General Electric, AT&T, Johnson & Johnson, Chevron, Microsoft, Cisco Systems, JP Morgan Chase & Co....

INTEL CORP. $16 (Nasdaq symbol INTC; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 5.6 billion; Market cap: $89.6 billion; Price-to-sales ratio: 2.6; WSSF Rating: Above Average) is the world’s largest maker of computer chips, with about 80% of the market. Computer makers Dell and Hewlett-Packard are Intel’s main customers, and accounted for 38% of its 2008 revenue. The recession has hurt computer sales. This, in turn, has lowered demand for Intel’s chips. Moreover, customers are switching to cheaper computers, including “netbooks,” which are smaller than traditional laptops and have less-powerful processors. Intel earns smaller profits on chips for netbook computers than from regular desktops and laptops.

Sales, earnings still below 2005 highs

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GENERAL ELECTRIC CO. $10 (New York symbol GE; Conservative Growth Portfolio, Manufacturing & Industry sector; Shares outstanding: 10.6 billion; Market cap: $106 billion; Price-to-sales ratio: 0.6; WSSF Rating: Above Average) has lost its AAA credit rating due to concerns over the quality of assets held by GE Capital, GE’s finance division. GE Capital profits from the difference between the rate it charges borrowers and the rate it pays to its bondholders. The lower rating will force it to pay higher interest on new bonds. Still, GE expects GE Capital to be profitable in the first quarter of 2009. GE aims to shrink GE Capital’s contribution to its overal profit, to 30% from 50%. This cuts GE’s risk. As well, GE’s industrial businesses, such as locomotives and power-plant turbines, should benefit from new government spending on infrastructure. GE is a buy.

J.P. MORGAN CHASE & CO., $22.85, New York symbol JPM, has cut its quarterly dividend by 86.8%, to $0.05 a share from $0.38. The new annual rate of $0.20 yields 0.9%. The lower dividend should save Morgan $5 billion a year, and help it cope with higher loan losses brought on by the recession. The company earned $3.7 billion, or $0.84 a share, in 2008. It also received $25 billion from the U.S. government through the Troubled Asset Relief Program. Meanwhile, Morgan expects to report a profit for the first quarter of 2009. That’s despite $1 billion to $1.4 billion in projected losses from home-equity loans. Morgan made these loans to high-quality borrowers, but because home prices have fallen so much, they now owe more that the current market value of their homes. Morgan also expects more losses from its credit-card loans. However, by cutting jobs at Washington Mutual, which Morgan bought in September 2008, it should save $2 billion this year. In light of its weaker loan portfolio, we’ve cut Morgan’s WSSF Quality Rating from Above Average to Average. However, the company is still in a strong position to survive the economic slowdown, and thrive when the economy starts growing again....