Banking on General Electric

GE @ $14

New York, BizBlog100@blogspot.com

GE has jumped sharply as the current yield has returned to 2.9%, (assuming a $.40 12-mo forward rate) almost in line with peer monsters Exxon 2.5% and Wal-Mart at 2.2%. Of course, GE’s investment profile is in many ways not comparable to petroleum or retail industry leaders. For many, the apt comparison is a nationwide bank.

GE has bank-like debt of $525 billion; more than Wells Fargo, less than Bank America and Citibank---about the same as JP Morgan. But, unlike the banks, GE primarily finances its own products and controls the collateral. The GE portfolio is at risk for the general decline in corporate creditworthiness. But the Company has been little touched by the securitization aspects of the financial markets and is a beneficiary of federal commercial paper guarantees while avoiding TARP regulation.

Management projects GE Capital profits at $2-3 billion, down from double that level in earlier years. The wonder is not that the dog sings badly…

GE’s financing activities are en enormous strength, expanding the profitability of core technologies by retaining the financing profit (like owning real estate) and also competing effectively for allied service contracts. I like the stock long term as a company that will grow. In the meantime, the 2.9% dividend provides some protection.






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