Q&A: General Electric

Hi Eddy, I’m curious on your opinion of GE a “blue chip” that for the past 5 years has underperformed the market to the tune of $10k invested 5 years ago (according to S&P) = about $8k plus.

Thanks for the email. General Electric (GE) is a great company. It’s one of the bluest of the blue chip stocks. It’s also one of the very few companies that has increased its earnings for ten straight years.
GE is also titanic. The numbers boggle the mind. The company has over 300,000 employees and a market value of over $350 billion. Owning GE is almost like buying an index fund.
The stock got absurdly overvalued five years ago. The P/E ratio got as high as 50. Last year, GE earned $1.72 a share so right now it’s going for almost exactly 20 times earnings. That’s a very good valuation for GE.
The company raised the lower end of its guidance by two cents a share to $1.94 to $2.02 a share (don’t laugh, each penny is worth about $100 million). There’s also a $1 a share dividend which works out to a yield of nearly 3%. That’s equivalent to over 320 Dow points.
General Electric is a great company, and the shares look very good right now.

Posted by on March 18th, 2006 at 12:37 pm


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