General Electric (GE)

Prefers Honeywell (HON-N), which has good exposure to the domestic market. We are seeing a pickup in manufacturing in the US where Honeywell has a much higher percentage of exposure. Also, excited about some of the divisions in Honeywell.

It is pulling back because of the market pulling back. Their recent acquisition could be causing a breather. She likes the industrial space. 40% of GE’s earnings are from financial services, which hampers valuations and they are working that down. That is why she does not own it.

Model price is 22.97, a negative 14% differential. Lead weights on their feet. They are trying to jettison some of those assets out the door. This company has to be reorganized. A chronic underperformer. The GE capital division is rotten and they need to get rid of it.

They made a large acquisition that was probably not the perfect scenario. It is a direction that he applauds because it takes them back to their industrial roots. 2016-7-8 will give them a pretty good future as they spin out a portion of GE capital. He likes them.

The spin-off of their financial division is the smartest thing they could be doing. There is a great lifecycle in conglomerates. They start off and pull together all kinds of companies, and they grow and grow. Get to their “level of incompetence” where, on the next acquisition, they will have to buy the other half of the world, and then things stop. It doesn’t have anything in the way of upside potential, but what it does have are all these wonderful companies inside it. So the 2nd part of a good conglomerate is where they start to spin off the parts. It turns out that the sum of the parts is worth an awful lot more than the whole.

A massive conglomerate. It’s hard to grow these things. This is the 2^nd half of the business cycle and industrial activities tend to pick up and broaden out. She wouldn’t trigger any capital gains by selling. Of all times, this is when you want to own it.

If we go back 5 years to 2009, GE is about equal to about where the S&P 500 is. It has done about the same. But this year it has underperformed it. So it is relatively cheap and he would call it a buy. If markets pull back then it would too however, even if a little bit less.

Have all kinds of exposure from an industrial standpoint. The knock against them, which he thinks they are fixing, is the black box as people can’t understand what the drivers of the business are. Is it finance, appliances, power generation, aircraft engines, etc? Over time he thinks the company will prune the portfolio. Has been a laggard.

Thinks there is more growth left in this stock. It depends on your approach to the US market. If you only wanted one player in the US market, this would be a great quasi “mutual fund”. It is in so much stuff, it does reflect the activity in the economy, which he thinks will get better.

A lot of people were disappointed in this company during the financial crisis. It was really dragged down by its financial wing, but of course, during the recession, its industrial wing did not do that well either. When it cut its dividend, it was a huge disappointment and the stock got killed. It has now recovered. Has tremendous earnings power. Thinks the dividend will increase steadily.

(Market Call Minute.) A high-quality industrial and will participate if the general economy improves globally as well as in the US. They are working down their financial service exposure.

Gives you global infrastructure and industrial. Thinks probably by the end of the year they split the company into industrial and GE capital and you could see this going 20% higher. The valuation of the 2 pieces standing alone should be $30-$31. Yield of 3.29%.

Very diversified product line. Great sector. It will play along with growth in the economy. But over 50% of revenues come outside of the US, but the US is the strongest economy in the world.

GE grew because of GE capital and because of doing quite large acquisitions. Thinks they cannot trade at the multiple they did in the 2000s. People gave it a high multiple because of stability in its earnings, but now they diversified into areas that are a lot more volatile. Yet as the US and emerging markets turn around, GE should benefit from it. If they made a big acquisition you would see it grow more.

A good global play. They are leveraging their strengths in each of their markets.