GE General Electric – We sold GE – 15% Gain

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Time to Take Profits

On April 1, 9 days ago we bought GE at $24.84. We felt it a bargain at that price. On April 10, 2015 we sold GE at $28.51. It’s a nice profit af almost 15% for a 9 day hold. It’s nice to say that we knew that announcements were coming, but we didn’t. We just felt the value compelling and with the large dividend, it was a good choice, while earning a good dividend.

GE just announced that they are changing their business model dramatically. They are selling real estate and financial assets in amounts big enough to stagger the onlooker. The market loved the move. The stock shot up and everyone is excited. The current CEO has been holding the reins since the last CEO (Jack Walsh) took the company into the markets that they are now selling. Investors had punished the stock for not being aggressive enough, and now everyone is joyful.

But no-one knows if GE can generate similar profits in its new venture as it did in its former ventures. We don’t know and we do know that we have an enormous profit, which on an annualized basis is about 600%. We are happy and wish them well. Perhaps when we see the results of these moves, we may re-enter.

Our original post follows.

General Electric

The chart below is a simple one. It shows the stock price of GE from pre 2008 to the current day over the last 8 years, including the 2008 disaster.

GE 8 year Chart

Similar to most Large Caps. after the lows of 2008 were reached, the stock recovered hitting a high of almost $21 in February 2011. Today the stock is almost $25 (not quite).  On a percentage basis, that works out to an increase of a bit over 4% per year – a most modest rise that pales next to the indexes and so many other listed stocks. Since December 2013, the stock has been on a downward trend dropping from $28 to $25. Normally one would consider this to be a negative sign, but in considering all of the circumstances, it is a buying opportunity. Today the stock is pretty much where it was in July 2013.

Now if you believe in trends and in channels, GE remains in the same channel since 2008. According to this technical analysis, the stock should shortly rise to the top of the channel, as it has done repeatedly. If it does, it will be a major win.

It’s Nice to Make Money While Holding

General Electric pays an annual dividend of 3.6%. That’s right, a 3.6% dividend. It is difficult to find a blue chip stock that pays a rich dividend. Most are less than 1/2 that amount.

So if you had held the stock over the period discussed, you would have make 3.6% in dividends a year, plus the stock would have gone up about 4% a year, for a ROI of a bit less than 8% annually. If you forget the doomsday speakers, and look at the facts, this has been a good stock.

Buy When the Bargains Abound

If you remember Baron Rothschild said that you should “Buy when there is blood in the streets“. Well although the GE stock price hasn’t been the best, it is still a far cry from a disaster. Perhaps we should instead listen to Warren Buffet “Price is what you pay. Value is what you get.” In this case, GE is not loved currently, but it is a far stronger company than what it was when it was trading at higher multiples. GE is a strong, international brand, with fingers in many revenue generating activities.

Perhaps a more appropriate quote from Mr Buffet is “Buying a stock is about more than just the price.” So here we have the issue. GE has been transitioning from a leveraged financial company, to a completely different and stronger company. Recently, GE had so many financial assets, that some feared GE would be subject to the same type of minimum capital requirements as the Banks are. That is no longer the case.

Who is General Electric Today

GE’s activities include aircraft engines, power generation, water processing, and household appliances, medical imaging, business and consumer financing and industrial products, & servicing customers in more than 100 countries.

GE wishes to transition from a financial company where last year about 60% of its earnings came from, to an industrial company earning the majority of its revenues from non-financial activities. Witness General Electric’s acquisition of energy assets from French firm Alstom (OTCPK:ALSMY). Today, General Electric acquired a 49% stake of Enel Green Renewable Portfolio. Earlier this month, General Electric acquired UK-based wind farm, which generates 16 megawatt of renewable energy.  General Electric also invested $200 million to build a manufacturing and training center in Suez, Egypt to support General Electric’s industrial operations, and manufacture products for the oil & gas, aviation, and transportation segments of the company.

There are numerous other acquisitions and projects reported recently by GE. It is a changing company.

Do You Follow What Insiders Do

The company’s Director Geoffrey Beattie recently purchased 800,000 shares of his company for nearly $20 million. This would translate into an average price of $25 a share. If insiders are buying in big numbers, what can be a more compelling indicator?

Who Else Likes GE

In a Top Global Picks report published by Barclays PLC (ADR)  the equity research analysts classified General Electric Company amongst the most lucrative stocks in the market, giving it an Overweight rating.

Overall, General Electric receives coverage from 24 analysts across the Street, with an average target of $29.21. Should the stock price of GE reach this average target, that would be an 18% gain plus dividends received. Some parties give the stock a value of between $32 and $38. Of course, everyone has an opinion. Our opinion is that this is a company to buy.

We Are Buying GE

Our stock pick today is General Electric (GE). GE closed today at $24.84, and we have added it to our notional portfolio.

 

 

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By Larry Cyna

Mr. Cyna is an accomplished investor in the Canadian public markets for over 20 years, and has managed significant portfolios. He is a financing specialist for private and public companies, and has expertise in real estate and debt obligations. He has assisted private companies accessing the public markets, has been a founding director of public companies and continues as a strategic consultant to selected clientele. He is and has been a director, a senior officer and on the Advisory Board of a number of TSX and TSXV public companies in the mining, resource, technology and telecommunications sectors, and the Founding Director of two CPC’s with qualifying transactions in mining and minerals. He was an honorary director of the Rotman School of Management MBA IMC program, has completed the Canadian Securities Institute Canadian Securities Course & Institute Conduct and Practices Handbook Course, was a former Manager under contract to an Investment Manager at BMO Nesbitt Burns, a roster mediator under the Ontario Mandatory Mediation Program, Toronto, a member of the Institute of Corporate Directors of Ontario, a member of the Upper Canada Dispute Resolution Group, and the Ontario Bar Association, Alternate Dispute Resolution section. He obtained his designation as a Chartered Accountant in Ontario in 1971 and was the recipient of the Founder’s Prize for academic achievement together with a cash reward. He became a CPA in the State of Illinois, USA in 1999 under IQEX with a grade of 92%. He is a Member of the Institute of Chartered Accountants of Ontario and the Canadian Institute of Chartered Accountants. He holds certificates in Advanced ADR & in Civil Justice in Ontario, Faculty of Law, University of Windsor, certificate in Dispute Resolution from the Ontario Institute of Chartered Accountants. Previous accomplishments are Manager of Cymor Risk Consultants LP specializing in Risk Management Assessment; CEO of Cyna & Associates specializing in mediation and ADR; Founder & Senior Partner of Cyna & Co, Chartered Accountants, a fully licensed and accredited public accountancy firm with international affiliations; and was a partner in a large public accountancy firm. Mr. Cyna is well known in the Canadian Investing community. He is invited to, and attends presentations given by public companies usually 3 or 4 times each week. These presentations are intended by the various hosting companies to present their inside story to sophisticated parties and Investment Managers for the purpose of attracting funding, or of making parties more interested in acquiring shares of those companies. Being a part of this keeps Mr. Cyna deeply involved in the current market and leads to numerous investment opportunities.