March 21, 2012
Welcome to the Stock of the Day for March 21, 2012. Today, we're going to analyze General Electric Co. (GE) and see if we want to put this "imagination at work" stock in our portfolios.
Company Overview: For the past 125 years, General Electric has been a company that has exemplified American ingenuity. Throughout the years, this company has been responsible for inventing the fluorescent lamp, the dishwasher, the toaster oven, the MRI and the first U.S. jet engine. However, even though General Electric is best known for its consumer electronics and appliances as well as industrial machinery, the company also has businesses branching into media, healthcare, transportation and finance. Operating in over 100 countries, the company currently employs over 300,000 people worldwide and is the 17th largest business in the world in terms of sales.
Industry Breakdown: The Diversified Machinery industry is composed of 336 companies; of these, General Electric largely falls towards the middle of the pack in terms of fundamentals. General Electric is fifth largest in terms of market cap, and it does fall in the top 15% in terms of Price/Earning to Growth ratio and long-term growth rate. The company's 3.4% annual dividend yield is also third in the industry. However, General Electric is just about in the middle in terms of sales growth, earnings growth and return on equity. Now, General Electric is a behemoth compared with its main competitors: Philips Electronics NV (PHG) and Siemens AG (SI). However, the company just isn't able to grow sales at the same rate that the other two electronics makers.
Acquisition Buzz: Over the past several months, the company has been on somewhat of a buying spree. Most recently, GE's healthcare unit acquired Xcellerx Inc., a fast-growing biopharmaceutical company that specializes in antibodies and vaccines, in early March. At the end of 2011, GE Capital acquired MetLife's U.S. retail deposit business, which consists of $7.5 billion of U.S. deposits, in order to build a stronger funding base. General Electric also acquired RMI, the world's premier maker of rail and transportation-related products, as well as nearly $1 billion in energy project finance assets located across more than a dozen countries from the Bank of Ireland.
Current Ratings: Before you buy any stock, you should always run it through my free Portfolio Grader ratings system. Over the past twelve months, this stock has not been able to break into "buy" territory. There are a few reasons for this. First, the company is at best lackluster in terms of its fundamentals. Out of the eight metrics I screened GE on, the company only shone in terms of operating margin growth. Six of the remaining measures, including earnings growth, cash flow and return on equity, scraped by a C-rating, and the company has hit rock bottom in terms of sales growth. Also, the stock hasn't been able to drum up adequate buying pressure. This is a C-rated stock.
Bottom Line: GE is currently a "hold," but it wouldn't take much to send this stock back into "sell" territory.