Stay Bullish; Buy General Electric

11/13/2013 7:00 am EST


John Dessauer

President, John Dessauer Investments, Inc.

The last five years have been punishing for stock market pessimists. They were wrong about a coming depression; they were wrong about the recovery; and they have been wrong predicting a 10%-20% correction, suggests John Dessauer in John Dessauer's Outlook.

Selling stocks at any time in the last five years has been a costly mistake. Central banks are determined to keep interest rates low and liquidity ample until a more robust economic recovery develops.

And while stocks are up, valuations are still within reasonable historical limits and far from past market extremes.

What is more likely is a stock-by-stock correction process. Individual stocks that rise more than the broad market can become vulnerable and pull back 10%-12%. That would be a healthy development and not be a threat to the broad market.

For now, do not fall prey to pessimistic stock market predictions. Instead be satisfied with modest returns for the next several quarters, perhaps for all of next year.

Meanwhile, we continue to recommend purchase of General Electric (GE). The company reported a solid third quarter and the stock rose to a new 52-week high. GE is downsizing the finance business.

That will be a drag on earnings until the plan is completed. The other part of the plan is to grow the industrial business, and that is working well.

In the third quarter, revenues from the industrial business were 2% better than a year ago. Better yet, orders grew 19%, indicating stronger future growth in industrial revenues.

Excluding special charges, GE earned $0.40 a share in the quarter, about 8% better than last year. GE is a cash machine.

Year to date, GE spent $8 billion buying back shares, used $8.6 billion for cash acquisitions, and returned $6 billion to shareholders in dividends.

With $133 billion in liquid assets, and more coming in every quarter, GE is likely to continue growing the business through acquisitions, and rewarding shareholders through stock buybacks and dividends.

For all of 2013, Argus Research has a $1.66 a share earnings estimate. Standard & Poor's expects $1.65 a share. For next year, Argus has a $1.78 per share estimate and Standard & Poor's says $1.85 a share.

GE is a solid, long-term investment that will reward shareholders through dividend increases and capital gains. I rate the stock a buy with a twelve month stock price target of $30.

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