Bargain Stocks for Black Friday: General Electric

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You've had your fill of turkey. You're stuffed to the gills with stuffing. And now, it's time to waddle on over to the mall and do your part to help rescue the Consumer Economy, right?

Not just yet. While "the economy" would certainly appreciate your effort, I've got a better idea: Pay yourself first.

Stock circular
As deeply as retailers are discounting their wares this year, Mr. Market has slashed stock prices to an even steeper extent. For proof, look no further than the running tally of the nation's largest stocks by market cap:

Company

Market Cap

CAPS Rating

ExxonMobil (NYSE: XOM  )

$385.6 billion

****

Wal-Mart (NYSE: WMT  )

$208.2 billion

****

Procter & Gamble (NYSE: PG  )

$188.4 billion

*****

Microsoft (Nasdaq: MSFT  )

$175.1 billion

***

Johnson & Johnson (NYSE: JNJ  )

$161.9 billion

*****

AT&T (NYSE: T  )

$148.4 billion

****

General Electric (NYSE: GE  )

$147.2 billion

****

Source: The Online Investor, 20 Largest U.S. Companies By Market Capitalization. As of Nov. 21, 2008.

You'll notice GE clinging to the bottom of this list. Yet just five months ago, GE held the No. 2 slot, right behind ExxonMobil, boasting a market cap nearly twice as plump as it has now.

How the mighty have fallen
It boggles the mind to say this, but right now, GE can be purchased for almost $140 billion off last June's already discounted price. But what's inside the box, you ask? Let's take a look.

Open-box sale
GE lowered its guidance in September, then reaffirmed that guidance last month in its third-quarter earnings report, assuring us it's "on track to meet our September 25 revised guidance for the full year." To wit:

  • "Industrial earnings," meaning the parts of the business being spared the brunt of the credit crisis, were up 12% over last year's Q3.
  • "Financial services," being the parts of the business hardest hit, will nonetheless earn "over $9 billion for the year."
  • And GE as a whole is "on track to earn approximately $20 billion in 2008."
  • As a further expression of confidence, GE committed to keeping its dividend intact at $1.24 per share through at least 2009.

So what's in the GE box? Oh, just one of the mightiest industrial conglomerates on the globe, selling for a P/E of about 7, even though core operations keep growing in the double digits.

Anything else?
Well, there's the little matter of the 7.9% dividend. And don't forget, as good as GE looks under GAAP, it's actually more profitable when you peel back the income statement and take a gander at the cash flow statement. There, you'll find that whereas GE is "earning" $20 billion a year, it's generating more than $28 billion in free cash flow.

Basically, GE's in fine financial fettle as is. But what about growth prospects? Analysts will tell you that the company can grow its earnings at better than 10% per year over the next half-decade. But GE might do even better. Consider a few of the growth industries it's involved in today:

  • Water: Drink much? GE is No. 2 in water treatment -- not a bad business to be in, in a world of melting ice caps and disappearing snowcaps.
  • Nuclear: Drive much? The recession's got oil prices down today, but if you think they're staying down long, I've got a primo oilfield in Pennsylvania I'd like to sell you. Electric cars are coming, and GE knows how to build the nuclear power plants to charge 'em.
  • Wind: Chernobyl got you nervous? Perhaps I could interest you in some wind power. GE's the nation's largest vendor of wind turbines.

In sum, GE gives you a chance to own one of the world's mightiest companies at one of the market's lowest valuations. To lock in a simply incredible dividend yield. To own a stake in the technologies that will solve global warming and the energy crisis. All in one neat package.

Has Christmas come early, or what?

Is GE a gift-wrapped present, or a lump of coal? Rate GE on Motley Fool CAPS, and tell us what you think.

Johnson & Johnson is a Motley Fool Income Investor selection. Wal-Mart Stores and Microsoft are Motley Fool Inside Value recommendations. Try any of our Foolish newsletters today, free for 30 days.

Fool contributor Rich Smith does not own shares of any company named above. You can find Rich on CAPS, publicly pontificating under the handle TMFDitty, where he's currently ranked No. 899 out of more than 120,000 members. The Fool has a disclosure policy.


Read/Post Comments (5) | Recommend This Article (47)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 28, 2008, at 12:03 PM, gmarshsc wrote:

    All this is easy to see....then why did GE have to take as much bailout money as it did? Why did the stock value fall to a bakers dozen??? Looks like the answer is the "quality of earning" which does not look as great when you try to dissect the insanity of the balance sheet that Immelt has created to use and abuse lenders. taxpayers,

    and God knows, weary shareholders...the debt to equity ration is astronomical...GE is the heaviest leveraged conglomerate in a world which will soon totally disavow debt...BUYERS BEWARE....a rally to 22 isn't out of the question, but very doubtful....

  • Report this Comment On December 02, 2008, at 5:20 PM, deglaude wrote:

    It is important to get your facts straight before publishing for public consumption. GE did not receive any bailout money...

  • Report this Comment On December 03, 2008, at 3:23 PM, NorCal56 wrote:

    One must wonder why Mr. Smith and or the Fool do not own hundreads of GE shares if they in fact present such an amazing opportunity...

  • Report this Comment On December 03, 2008, at 9:09 PM, Champ67 wrote:

    Fine ... don't buy. That will keep the price down so I can buy more shares and receive the 7% yield on the dividend.

  • Report this Comment On December 04, 2008, at 12:34 PM, Slipswitch wrote:

    Doesn't GE have significant CDS liability?

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