When considering any stock for your portfolio, don't be swayed by just the positives. Examine its pros and cons, and decide whether it's possible upside outweighs its risks. Let's take a look at General Electric (NYSE:GE) today and see why you might want to buy, sell, or hold it.
Founded in 1892 and based in Connecticut, General Electric is a whopper of a company, with a market capitalization of about $225 billion and more than 300,000 full-time employees. It operates in industries ranging from energy to financial services to electronics to health care to mining to aviation -- among others.
One reason to buy into General Electric is its past. In its 120-year history, it has developed a lot of competencies and grown into many leadership positions. Its stock has rewarded investors, too, averaging an annual return of 11.5% over the past 30 years, for example. (All periods haven't been quite so generous – over the past difficult decade, it averaged 1.2%, and over the past 20 years, 9%.)
Its future is also attractive, as the company is far from standing still. It has been investing in alternative energies, planning to buy $1 billion worth of electric cars for its workforce, for example, and selling many wind turbines. It has been adding on new strengths, too, such as via a new GE Mining unit, spurred by its purchase of Fairchild International and other companies.
With more than $130 billion in cash recently, GE has a lot of opportunity. It can buy other companies, even large ones, to establish or strengthen its position in various industries. Some have suggested, for example, that it might buy solar-energy specialist First Solar (NASDAQ:FSLR). It could boost its mining revenue considerably by buying Joy Global (NYSE:JOY), too.
The company's diversification can be a plus, too, because if one unit falters, its effect will be largely offset by other units' performances. Of course, there's something to be said for more focus, too, as it can make blowout performances more achievable. GE Capital, for example, struggled during the recent credit crisis, and is now largely back on its feet, resuming the dividends it typically pays its parent company.
GE's brand is another advantage, recently estimated by Interbrand to be worth nearly $44 billion. It's the sixth most valuable brand in the world, lagging Coca-Cola (NYSE: KO), Apple (NASDAQ: AAPL), and IBM (NYSE: IBM), but ahead of McDonald's (NYSE: MCD), Toyota (NYSE: TM), and Disney (NYSE: DIS). Brand power gives companies pricing strength, among other things.
Then there's GE's dividend, which currently yields about 3.2%. Some may remember that GE slashed its $0.31 quarterly dividend by 68% in 2009, but it has been raising it ever since, bringing the $0.10 quarterly payout up to $0.17 recently.
Scan through news reports and you'll see signs of many cylinders cranking at GE. It recently secured a nearly $1.1 billion contract with Brazil's Petrobras (NYSE:PBR) to deliver some 380 subsea wellhead systems for oil exploration.
One reason to bypass GE right now is its valuation. Its recent price-to-earnings (P/E) ratio of 17 is above its five-year average of 14, and its price-to-sales and price-to-cash-flow ratios are also above average.
You might also consider Europe's prolonged struggles, which are reining in spending and thus hurting international operators such as GE. International operations can be a big boost for business, as many other economies are growing faster than ours. But they bring currency translation issues, with GE having lost about $900 million in a recent quarter because of that.
Some worry, too, that the company may be making too many big acquisitions. After all, much of its cash could reward shareholders via dividends or share buybacks, too.
Given the reasons to buy or sell General Electric, it's not unreasonable to decide to just hold off. You might want to wait for its stock price to fall, giving you a more attractive entry point. Or perhaps you might want to see revenue growth pick up, or to see if government incentives for wind-turbine purchases are extended, boosting GE's business.
You might also take a closer look at some other conglomerates, if you're after diversification. Macquarie Infrastructure (NYSE:MIC), for example, is a far smaller company, but operates in several arenas, such as parking, roads, water, and energy. It sports strong free-cash-flow growth and a 6.3% dividend, though it also sports a relatively rich valuation at the moment.
I'm going to pass on General Electric for now, but it may well appear in my portfolio one day. Everyone's investment calculations are different, though, so do your own digging and see what you think. Remember that there are plenty of other compelling stocks out there.
Longtime Fool contributor Selena Maranjian, whom you can follow on Twitter, owns shares of Apple, Coca-Cola, and McDonald's. The Motley Fool owns shares of Apple, Walt Disney, General Electric, IBM, Joy Global, and McDonald's. Motley Fool newsletter services recommend Apple, Walt Disney, First Solar, IBM, Coca-Cola, McDonald's, and Petrobras. Try any of our Foolish newsletter services free for 30 days. We Fools don't 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.