The case for the recent price increase in GE stock goes something like this: As the economy slows, investors want a steady performer with stable earnings growth and a decent payout. The stock has gone nowhere over the last two years, but has moved up almost 8% in the last week.
There are flaws in the reasoning. GE actually expects earnings growth to slow to a rate of 10% to 13% next year. It also has businesses that could be badly hurt in a downturn.
The company’s NBC Universal unit is still a loser in terms of contribution to GE’s operating income. There is no solid reason to believe that this will change. GE’s infrastructure business could be hurt if large capital spending projects are cut back in an economic slowdown. The same is true for businesses like jet engines. A poor economy is not likely to help the airlines, espcially if it is accompanied by spiking fuel costs, which often causes a slowdown on its own.
GE’s stock is at $38 now. It has a long way to go to get back to $60 where it traded in 2000. If the economy slows, GE has just as much of a chance of getting hurt as any other company. It is so broadly diversified that it is almost a proxy for the economy.
In a slowdown, how is that good?
Douglas A. McIntyre can be reached at [email protected].
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