Look Closer at GE

 | May 21, 2013 | 11:08 AM EDT  | Comments
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The stocks sure aren't waiting for Europe to turn.

That's my only conclusion when I see Eaton (ETN), Cummins (CMI), 3M (MMM) and Emerson (EMR) roaring even after conference calls where there is a Europe lament. Next thing you know, Alcoa (AA) will start going higher after real negative European chatter. And that will be the bottom for certain.

I have been calling the bottom in Europe ever since we saw Irish bonds doing better and Spain getting out of the headlines. I admit that all we have so far is anecdotal evidence of a turn. A comment here from PVH (PVH) about strength in Germany. A comment there, just last night, from Urban Outfitters (URBN) that Europe is stabilizing. Emerson actually used the term "bottoming out," which is what got this new leg of the rally going. I am pretty sure that we will hear decent things from Salesforce.com (CRM) about Europe when it reports Thursday evening.

The Europe-bottoming call is also one of the reasons why JPMorgan (JPM) and Goldman Sachs (GS) have been running. They have been overly linked to Europe for years now -- like it or not for the CEOs.

Now the one to watch? General Electric (GE). This stock, which my Charitable Trust owns, has been a huge disappointment. Much of it is surprising given that it is integral to the aerospace sector, as well as the energy sector, particularly drilling. It has terrific housing exposure, which we know has turned as one look at Whirlpool (WHR) would indicate. We know health care's been horrendous but how long can it stay horrendous? And horrendous, by the way, is relative because it's not like the division is bleeding, it's just not on fire.

We know GE Capital is strong or it wouldn't have just paid a $6.5 billion dividend to the parent.

But time and again, GE's weakness has come back to Europe. So if Europe turns, this might be the play.

Why GE? Because this is one of those stocks where if a big institution wanted exposure, they could pick up the phone and buy 2 million GE without so much as moving the stock. This is the heaviest and the most liquid stock out there with a buyback that really hasn't reduced the float, unlike so many other industrials. It had 10.6 billion shares three years ago and now has 10.4 billion, plenty to get instant exposure to Europe. At times like this, the mutual and hedge funds thrive on liquidity. They want to come in and buy without moving a stock higher with their own buys. General Electric fits that bill.

Here's what's most important about this idea: You simply can't wait for CEO Jeff Immelt to give the all-clear. By that time, the stock would be at $28. That's just the way it works. You cannot wait for the company to tell you things are getting better. That's when the easy money has already been made.

GE is way behind the market. No one is thinking, "I missed this one." In fact, many people think it will never move. But if Europe is bottoming out, as Emerson says, this is the next one to rally.

Time to buy before everyone else does. That's how it has worked, even with the disappointers like MMM, Emerson and even IBM (IBM).

It's the only one left.

It's not going to be for long.

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