Friday, April 11, 2008

Buying Opportunity in GE

GE, the great American conglomerate corporation, was down about 13% today at its low (just made around 2:15PM at $32).

GE's finance department was mainly responsible for the disappointing numbers released today, as they blamed Bear Stearn's meltdown for impairing their ability to sell securities, instead having to mark them to market, resulting in greater devaluation of those assets.

They also mentioned weakness in the overall US economy, specifically, their healthcare biz.

However, look at the big picture - this should be just a short-sighted hiccup in GE's huge, successful business. As their ECOmagination commercials publicize, GE is developing solar, wind, water, aircraft- and train- engine and nuclear technologies that will power the world of the future. Hospitals are buying up more of their healthcare devises as the population ages and demands more tests. The NBC properties (including CNBC) are probably a fairly steady business.

They said that the revised estimates are VERY conservative and based on no growth this year; I'm thinking that they'll pleasantly surprise the street as they've now priced in the worst-case scenario. GE can even benefit from a weaker dollar, as much of their sales are made overseas.

As GE pays a 4% dividend and, based on an approximate current price of $32, GE is only trading at 13.6x 2008's earnings (using the midpoint of the new estimate - $2.35). Analysts expected $2.70 in 2009 - which may be lowered a little - but the forward P/E is even cheaper.

I think that this short-term drop is a great long-term entry point for a solid, growing, dividend-paying American business.

I'm playing this very short term with April $31 calls. If I wasn't fully invested, I would have bought stock.

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