Catalysts Taking GE to Multi-Year Highs (GE)

General Electric Co. (NYSE:GE) is hitting new recent highs again, although it may be worth noting that these $42.00+ prints are not new highs from 1999 to 2001.  Nonetheless, this marks five-year highs in the stock.

There were some concerns on the street up until yesterday that the company might have some weakness in its consumer exposure in appliances and finance, but CFO Keith Sherin addressed analysts yesterday and maintained prior earnings guidance in his "pretty good economy" explanation.  That has acted as the catalyst along with a FOMC decision to cut Fed Funds and the Discount rate by 50 basis points. 

GE remains one of the few AAA rated debt rating companies out there.  Analysts still have an average price target of $44.00.  Just this morning, Goldman Sachs noted that the company is well positioned to benefit from leadership in infrastructure, across energy, aviation, transportation, oil & gas, water, and financial services.  Goldman Sachs also noted that the exit from Japanese consumer finance is not surprising.  Goldman Sachs does note that it expects investors will be challenged to understand all the accounting nuances "impacting an array of offsetting gains and charges across Q3 reported earnings versus continuing operations."  Goldman Sachs remains with targets for earnings of $2.21 in 2007 and $2.45 in 2008.

Regardless of outside analyst calls, GE is a company that is just hard not to be impressed with.  After a semi-private luncheon with CFO Keith Sherin in July, it was hard to not be impressed with Sherin’s stance that "GE is a growth company" on numerous occasions.  I would have classified it as more of a cyclical or income play because of the conglomerate nature.  But Sherin stated that the company seeks a 20% return on capital across the spectrum and they review all segments with that target in mind.  If that isn’t attainable, then a divestiture of an underperforming operation becomes much more likely.   If you look at what the conglomerate is doing in oil and gas now, you’ll think they plan to get quite large there.  Anyone hearing the entire presentation from management will dismiss any of those old break-up calls.

Any time these giant stock hit new highs, it is never out of the norm to see some profit taking.  With a now $429 Billion market cap, it takes quite a bit of cash inflows to move the stock up.  Nonetheless, it would appear that the floor is now much higher than just a month ago.  It is also worth noting that stocks that exceed old highs tend to do that for more than just one day.

Jon C. Ogg
September 19, 2007

Jon C. Ogg produces the 24/7 Wall St., LLC Special Situation Investing Newsletter; he does not own securities in the companies he covers.