Best Stock for 2009: General Electric

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Last month, I argued that General Electric (NYSE: GE  ) deserved prime placement on your Christmas stock shopping list. At the time, GE occupied unlucky No. 7 on the list of the nation's largest firms:

Company

Market Cap

CAPS Rating

Exxon Mobil (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.

That column gave rise to roughly four dozen recommendations from esteemed readers like you, and plenty of discussion in our comments section. And as it turned out, GE was poised to prosper.

Market cap leapfrog
Over the ensuing three weeks, GE pushed past AT&T, hopped over J&J, bypassed Mr. Softy, and did an end-run around P&G to reclaim the No. 3 slot on this list. It's gained some $32.4 billion in market cap -- nearly $2 billion a day -- which strikes me as a resounding vote of confidence from investors. But are there still more profits to take here?

All aboard?
I suspect you still have time to board the GE train for a ride to riches in 2009. Mind you, while this piece will be published Thursday, I'm typing it on Monday, 24 hours before CEO Jeffrey Immelt's Tuesday update on GE's industrial businesses.

While I'd love to incorporate Immelt's comments on current market conditions, in the long run, I just don't think they matter. As I expect Immelt to discuss Tuesday, GE remains dogged by worries raised in Monday's Wall Street Journal about the twin effects of the global recession and falling oil prices. According to the Journal, GE's energy business will generate some $5 billion in profit this year, or nearly half the annual dividend that GE has promised to maintain through 2009. But all the same, it seems this business is in trouble.

Energy: Who needs it?
Customers such as Duke Energy are reportedly delaying power-plant projects as the nationwide recession puts a damper on electricity demand. Schlumberger -- a GE competitor -- warned on earnings earlier this month. And Wall Street analysts Sterne Agee and JP Morgan were both quoted espousing pessimistic outlooks for power equipment demand.

According to the pundits, GE was doing great when oil was touching $150 a barrel last summer, and still thriving as oil dropped to $85 in October. But with those same hydrocarbons now selling for as little as $45 a barrel, there's supposedly less demand for GE's stable of alt-energy plays. No one's interested in its solar-power modules and wind turbines to supply power, nor its energy-efficient locomotives and jet engines to consume less of it.

Balderdash.

Us! We need it!
I suspect that Wall Street is falling into its usual trap of short-term thinking here. As Warren Buffett so often paraphrases Ben Graham: "In the short term, the market is a popularity contest; in the long term, it is a weighing machine."

Wall Street's concerns over the short-term effects of $45-a-barrel oil (and the recession that pushed this price down) seem incredibly shortsighted to me. Honestly, in the long term, do you think the world will need less energy, or more? Exactly.

Long-term, we're still looking at GE shares priced at eight times trailing earnings, and just six times free cash flow. Better yet, Wall Street believes GE will grow by more than 10% per year long-term -- and pay its shareholders a good 7.2% dividend yield while they wait for that growth to materialize.

Foolish takeaway
Based on these numbers, I like the odds that GE will outperform the market handily in 2009 and beyond. To my mind, it's best to bet on this while the analysts are betting against it, pushing GE's share price down. If you agree, click on over to Motley Fool CAPS to place your vote for GE as the best stock of 2009.

Johnson & Johnson is a Motley Fool Income Investor selection. Wal-Mart Stores and Microsoft are Motley Fool Inside Value recommendations.

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. 840 out of more than 120,000 members. The Fool's disclosure policy sheds light on the darkest corners of the market.


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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 December 19, 2008, at 5:21 AM, LondonMatt wrote:

    What a difference a few days make... I wonder how your opinion has changed in light of the news of the past few days?

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