GE's Making All the Right Moves

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Earlier this week, I wrote that with market conditions being what they are, Fools might revisit the largest U.S. company, ExxonMobil (NYSE: XOM  ) . It therefore may seem like a systematic traipse down Market Cap Lane when I suggest that No. 2 General Electric (NYSE: GE  ) also deserves more than a passing gander.

The past year hasn't been an especially happy one for the General. With Mr. Market anything but stable, its shares have declined by about a quarter to around $29. And if you take the time to skim the company's second-quarter earnings release, you might think that I'm jumping the gun. Net income was down nearly 6% from the year-ago figure.

However, it's what's going on structurally at GE that's really piqued my interest. For instance, it has been divesting freely, pruning underperforming units while building up its stronger parts. Heading out the door are its consumer and industrial businesses, through a spinoff to GE shareholders. So it's soon to be out from under its historic -- but slow-moving -- appliance lines, along with its lighting, motors, and electrical units.

But rather than just chopping, GE is adding appropriate units and garnering orders faster than you can say "General, sir." For example, it began this month by announcing that it'll buy Citigroup's (NYSE: C  ) commercial leasing and commercial equipment finance businesses, thereby adding about $13.2 billion in assets. At the same time, it announced that its Jenbacher unit's gas engines would power China's first chicken manure-biogas plant. (That's not what I meant in the first paragraph above by "a passing gander.")

These are all moves I like, including the approach of spinning off company parts to loyal shareholders rather than selling them outright in a weak mergers and acquisitions market. Beyond that, I'm hardly dissuaded from focusing on this cash-spinning company's forward P/E just above 12 times, and its 4.3% dividend yield. But while it really is a random event that I'm high on both the first- and second-largest U.S. companies, don't count me out from someday scratching on your door with thoughts about next-in-line Microsoft (Nasdaq: MSFT  ) and Wal-Mart (NYSE: WMT  ) .

It appears 8,711 Foolish CAPS players are bullish on GE. Want to make it 8,712?

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Fool contributor David Lee Smith doesn't have a financial interest in any of the companies mentioned. He does, however, welcome your comments. Microsoft and Wal-Mart are Inside Value recommendations. The Fool has a disclosure policy.

Read/Post Comments (2) | Recommend This Article (2)

Comments from our Foolish Readers

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 August 22, 2008, at 3:02 PM, madmilker wrote:

    is tat why the Wizard moved the Money overseas!

  • Report this Comment On August 23, 2008, at 9:27 AM, StrategyLeader wrote:

    GE has been a portfolio manager since it instituted strategic thinking and decision making in the 1970s. Immelt's predecessors made strategic moves, but were not HEDGE fund managers. Immelt and his team appear to be more interested in making deals than managing the business. Change causes problems, but continuing change causes chaos. How do you lead an organization that is continually changing, especially when it covers a dozen industries and is global?

    I strongly believe that Immelt must stop being a deal maker and manage the portfolio he has. It is a good portfolio and should be sufficient to be successful. However, it must also be recognized that the company is over $170 billion in revenues and no deal or order can really make a difference by themselves.

    Bill Rothschild, author of the global best seller (now in six languages, including Chinese), THE SECRET TO GE's SUCCESS.

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