Barron’s writes that GE’s (GE) stock, which has been trading in the mid-$30s could go to $50. The magazine’s article is fairly convincing. The company has sold off dogs like plastics and insurance. More of the company’s earnings will come from divisions outside Finance which brought in 51% of GE profits last year. (Financial services companies tend to carry a low multiple).
But, being even-handed, Barron’s mentions the problems with GE, which are substantial. The company is increasing its exposure in India and China. The reward in fast-growing economies could be tremendous. But, they are also regions subject to volatility.
Perhaps most damning is a look at GE’s P/E. It is forecast to be 17 this year and 15.1 in 2008. United Technologies stands at 16.6 this year and 14.6 next. And, Siemens (SI) is at 17.9 this year and 14.9 in 2008. It is hard, therefore, to make a case that GE is unusually cheap. It is not.
If mega-cap stock come back into vogue, GE could be helped. Barron’s points this out. But, that is a big "if". The markets tend to be efficient, especially with larger and older companies that have long histories and big followings on Wall St.
It is not an accident that GE’s stock is up only 25% over the last five years and the S&P has risen almost 50%. The Barron’s piece may give the shares a pop, but, that will be short-lived.
Douglas A. McIntyre can be reached at [email protected]. He does not own securities in companies that he writes about.
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