General Electric (GE)

CEO is a little out of favour. It is one of the worst performers in the Dow to date. Still has a very generous dividend yield and they have a number of various levers for growth, from healthcare to energy. Thinks investors are ultimately going to come back to this company. If all else fails, they can do more restructuring to unlock value.

He shies away from it. They spun off parts over the years. But it is such a big conglomerate. He only likes some parts. It will not be an outperformer.

Has been disappointed with the sideways movement. However, it gives a pretty nice dividend of about 3.5%. It is under-tracking some of the other industrial names he owns. He is keeping a very close eye on this to see if it gets close to his exit point of a stop loss.

He likes industrial companies, especially advanced manufacturing and robotics. The problem is, this company is one of the worst performing industrial companies in the sector. It has significantly underperformed the group. This is one for a bottom fisher, not for him.

If you don’t have much exposure to industrials, this is a good name to own. It reminds him a lot of Microsoft (MSFT-Q), which was stuck in the mud back around 2013. When Ballmer was replaced, the stock hasn’t looked back since. If the CEO was replaced, he could see the stock significantly higher. Good dividend yield.

If you are going to go into industrials, he would go more towards a Honeywell (HON-N). Over the last number of years, they have been rationalizing their portfolio’s businesses, so the chart is not really reflecting organic growth. They now have a much leaner, better portfolio of businesses.

This is a company that has missed the boat. The street is questioning the capabilities of the management. Sell and look elsewhere. This company moves so slowly that they buy companies at the wrong time. There are better plays.

An industrial company that had a massive financial services business attached to it. That financial services had a very high return on equity, that kind of masked the cyclicality of the industrial businesses. Trading at 18X earnings with a 3.3% dividend yield, but it is a 90% industrial company, and is more cyclical than it ever was before. He would say this is fairly valued at these prices.

He likes this, but it has been disappointing in terms of its relative performance to the rest of the group. The industrial space is a prime sector that should do well in an environment where cyclicals are doing well, a pro growth environment, where there is reflation and economic growth. He continues to hold this because the dividend is quite nice at 3.2%. The dividend growth rate should be pretty decent going out a few years. Feels they are being caught in the transition back to an industrial company and is being overlooked by investors. However, valuations are not extremely cheap for a company like this, 18X earnings and growing at about 10% or so.

(Top Pick Mar 22/16, Down 2%) It has been a disappointment. He liked it because it was being transformed. They got out of financial services just as financial services were taking off. What hurt them in the last year was their commitment to energy services. He is still there though. He owns it as a cyclical industrial company.

He does not admire this company’s management, even though the CEO gets almost universal praise for being a great CEO. The numbers don’t support it. The CEO started with the company in 2001, about 15 years ago, and looking at sales revenues per share, they are up only 5%-6% in total. Earnings and cash flow are flat. They’ve had one misstep after another.

The chart shows this has done nothing, and it is not going anywhere. Trading in a well-defined range of about $28 and $33, so you can pick your spot. $29 is probably not a bad place to buy, but he wouldn’t pay more than that.

This is a stock he has stayed away from. Prior to 2007, when they owned GE Capital, everybody paid a higher multiple for it because of the earnings and the high return on equity, but a lot of that came from GE Capital. Now they’ve gotten rid of GE Capital, so why would you pay a much higher multiple for a company that has a lot more cyclicality than people think. It is fairly valued at these levels, so it is not going to go up dramatically.

He doesn’t own this because he finds there are other companies that are less cyclical. He doesn’t like cyclical companies, and the market doesn’t either generally. This has become more cyclical with the recent changes they have made. There are better stocks out there.

(A Top Pick Feb 18/16. Up 6.26%.) Industrials have been a theme for him over the course of the year. About 20% of his portfolios are industrials, which is probably the most under-owned sector of the market, but the one with the most upside as we go out over the next 5 years.