This Stock Is Poised for Growth

If you've been watching General Electric (NYSE: GE  ) over the last few years, you've probably noticed some disheartening trends. Its net income from continuing operations was down to $13 billion in 2010 compared to $18 billion in 2008, and its stock price has ranged from $37.10 in January of 2008, to its current $19.35. Even though this period also encompassed the worst financial calamity since the Great Depression, GE looks in some ways a shadow of its former self. 

Given all this, you might be thinking I'm about to say it's time to bid farewell to GE, but guess what? I'm not. Here's why.

The recession felt 'round the world
It's no secret that the recession has hurt manufacturing companies like GE (although GE Capital also played a significant role in GE's woes). According to the Federal Reserve, production declined sharply in 2008 through the first half of 2009, and this caused manufacturing conglomerates like GE, Siemens (NYSE: SI  ) , Tyco International (NYSE: TYC  ) , and 3M (NYSE: MMM  ) , to see a drop in revenue.

However, 2010 saw gains in production, and the Federal Reserve now reports that the gains were stronger than previously reported. Additionally, the U.S. Census Bureau announced that as of March 2011, manufacturers' shipments were up 11% from March 2010. By looking at the chart below, you'll see that the good news keeps coming for manufacturers:

 Year

GDP Percent Change Based on Current Dollars

GDP in Billions of Current Dollars

2010

3.8%

$14,660.4

2009

(1.7%)

$14,119.0

2008

2.2%

$14,369.1

How this affects GE
GE has a wide range of products, but many are dependent on a cyclical consumer base. For example, GE makes jet engines for Bombardier (Pink Sheets: BDRBF.PK), but if Bombardier is suffering a decrease in demand, it's not going to order as many engines from GE. The same can be said for the rest of GE's products.

Because GE depends on this cyclical consumer base, the best time to buy stock is at the bottom of its cycle. So the question is, was the 2009 sales drop the bottom of its cycle, and if it was, is this a healthy company for the future? Let's look at the numbers:

General Electric

2010

2009

2008

Net income from continuing operations (millions)

$13,158

$11,143

$18,089

Interest coverage

10.6

9.8

7.4

Free cash flow (billions)

$26

$16

$33

Now's the time to get in
By examining the numbers, one can see that GE, as a whole, looks pretty healthy. The economy is still recovering -- and there could be more dips before it gets there completely -- but GE looks strong enough to come out ahead in the long run. Moreover, GE's P/E is currently 16, which is slightly below the industry average. Since GE looks to be coming out of the bottom of its cycle, now may be the time to get into GE and profit from its future growth and higher returns.

Want to keep up with General Electric? Click here to add it to your watchlist.

Fool contributor Katie Spence hopes the economy keeps recovering. She does not own shares of any company named above

Motley Fool newsletter services have recommended buying shares of 3M. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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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 June 01, 2011, at 1:52 PM, exGEer wrote:

    You forgot to mention the most important factor as to why the GE price is so depressed - Jeff Immelt!

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