GE Back to Basics

 | Jan 22, 2013 | 9:00 AM EST  | Comments
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Does anyone think GE (GE) could get back to $40?

You have to go back to 2008 to find GE anywhere near $40, but with the financial crisis behind us (and the company focusing on manufacturing now) could this be an easy ride higher?

I know, I know. You're worried about the global economy, the deficit, inflation, taxes ... yada, yada, yada. There' never a shortage of stuff to worry about. The lesson last year was to focus on growth. If you spent all your time worried about Greece, taxes, fiscal cliff, Congress, etc you underperformed all year. Shut off the TV.

Now, I don't think it will be easy to get back to $40. But two years from now I think you'll look back and kick yourself when you look at the chart.

Last Friday, General Electric reported fourth-quarter fiscal 2012 results and the stock jumped on the better-than-expected numbers. Total company revenue rose 3.6% to $39.33 billion. This was the second consecutive quarter with all industrial segments reporting positive earnings growth. Five of the seven industrial segments reported double-digit earnings growth. Industrial gross margin of 17.3% increased 120 basis points. For the year, industrial revenue grew 8% and reported margins of 15.1%, up 30 basis points year over year. 

During the quarter, General Electric bought back $2.1 billion in stock and $5.2 billion for the year. The company also announced a 12% divided increase. The company ended the year with $77 billion in cash.

I was particularly interested in the 48% year-over-year increase in cash flow and the gigantic backlog of $210 billion. About $210 billion in order backlog is an all-time high. Holy cow! Orders ended the year up 20% over 2009's $175 billion. (So much for all those worldwide recession theories.)

With strong margins and a huge backlog, management was confident with its forecast of double-digit earnings growth. In addition, the company talked about continuing margin improvement, a plan to return another $12 billion to shareholders -- through buybacks and dividends -- and "significant cash" coming from GE Capital.

It seems to me that GE is on a long-term ride back up to $40 a share. I think you can sit back, collect the dividend and watch the backlog turn into revenue and earnings. I wouldn't over think GE.

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