Market Woes – Diversification is the Key, Or Is It?
|Written by GSCR Staff|
|Tuesday, 14 October 2014 06:00|
The blood bath continued yesterday on Wall Street but we believe there is a bottom once oil prices stabilize.
With the big down turn and high volatility there are bound to be buying opportunities both for the long and short term. Today we will focus on a longer term play.
General Electric (NYSE – GE - $23.95) is an American icon with a multinational presence that dabbles in just about everything. This may have been the problem for the stock. With so many diverse businesses, many of which are cyclical, gaining traction and growth potential to attract buyers has been somewhat of a struggle for the Company.
CEO Jeffrey Immelt has begun an aggressive divestiture campaign selling $4 billion is assets this year and has commented, “For me to say we're done with divestitures would be lying”. Mr. Immelt plans to sell off more of GE Capital and re-focus the Company on its core in industries like aviation, diesel locomotive engines, and oil and gas. More than likely the Company will stay firmly entrenched in the medical industry as well.
An attractive dividend yield of 3.6% and a forward P/E of 13 based on 2015 revenue projections of over $150 billion, representing a steady 2% CAGR, make GE attractive from both an income and growth valuation perspective. A steady increase in gross profit margin over the last four quarters to 35% currently also indicates the Company is maximizing the pricing to costs equation.
Getting into GE at current levels may be a rare opportunity. For those that believe the overall market sell-off will continue, $20 may be the optimal price. 2015 could be a big year for the stock.
Have a great day!
Disclosure: Goldman Small Cap Research analysts are neither long nor short these shares but may elect to purchase the stock within the next 48 hours.
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