Great Call on General Electric! What's Next?

With the financial markets about as predictable as a spin of the roulette wheel lately, stalwart General Electric (NYSE: GE  ) has been providing investors with a welcome dose of stability. Over the past 12 months, GE has been steady through the storm, gaining 7% while the S&P 500 index lost 6%. On top of that, the stock is currently yielding 3.5%, which is better than you can expect from some short duration U.S. Treasuries at this point.

Investors in The Motley Fool's CAPS community have correctly identified GE as a safe harbor, rating the stock four out of a possible five stars. But nobody on CAPS read the stock better than hondo928, who picked the stock as an outperformer twice and earned 23 points for his timely calls.

Mr. hondo is one of CAPS' All-Stars -- players with a rating of 80 or greater -- and he has managed a stock-picking accuracy of 61% on his calls, while racking up more than 3,300 points. GE hasn't been his only great call. Here's a look at a few of his other prescient picks:

Company

Date Picked

Call

Points

CAPS Rating

LB Foster

4/5/07

Outperform

127

*****

Chipotle Mexican Grill (NYSE: CMG  )

4/2/07

Outperform

104

***

Astronics (Nasdaq: ATRO  )

2/5/07

Outperform

99

****

Data from CAPS.

So what is this investor looking at these days? Here are a few of his most recent calls on CAPS:

Company

Date Picked

Call

CAPS Rating

Bear Stearns (NYSE:BSC)

3/19/08

Underperform

*

SanDisk (NASDAQ:SNDK)

3/12/08

Outperform

****

Altria Group (NYSE:MO)

3/5/08

Outperform

*****

Data from CAPS.

While not all of these picks may pan out, they could be a good place to start some further research. I decided to take a closer look at Bear Stearns.

Burned on Bear
Thanks to some overly aggressive betting on the mortgage market and the recent credit crunch, Bear Stearns basically crumbled a week ago as counterparties stepped away from the 85-year-old investment bank. Today Bear sits in a stock market purgatory where investors, regulators, and potential acquirer JPMorgan (NYSE: JPM  ) are all trying to put a number on the value of Bear's equity.

Speculators that were betting on JPMorgan raising the takeover bid from the original $2 were rewarded on Monday as the bank announced that it is raising the effective price of the buyout to $10 per share. Action hasn't cooled and massive volume on Monday had the stock trading well above $10.

So should investors be shorting the stock down to the offer price? Or should they be betting that JPMorgan will push up the offer further? If you ask me, investors should be steering clear completely. Merger arbitrage is a tricky business dominated by quick-to-move hedge funds to begin with, but throw in the fact that this is a highly controversial deal that involves backing from the U.S. Federal Reserve, and you might as well be betting on a coin flip.

On CAPS, where pride is on the line but retirement savings aren't in the picture, players have been jumping to place their bets on the fate of Bear's stock. A number of CAPS players betting that the deal would go through at $2 per share were burned by the revised JPMorgan offer. Others, though, just now jumped in, hoping that $10 per share will be JPMorgan's final answer and the stock will fall from its current perch. Among this group is CAPS All-Star kengc, who said:

[Bear Stearns' stock is] selling for more than the buyout price of $10 per share. I cannot imagine another bidder offering more than the revised $10 [JPMorgan] is offering. Of course, the rest of the market disagrees since the current price of $12 exceeds by 20% the offering price by [JPMorgan]. We shall see ...

So what's your take on Bear Stearns? Get in the action by clicking over to CAPS. CAPS is absolutely free and already has over 89,000 stock pickers chipping in to find the best stocks out there.

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