If you've been watching General Electric
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
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.
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