Buying the Generals

03/26/2014 7:00 am EST

Focus: STOCKS

Chris Versace

Editor, PowerTrend Bulletin, Growth & Dividend Report, and PowerTrader

We are not short-term traders; rather, we are long-term investors in businesses poised to profit from the intersection of powerful forces, explains Chris Versace. The editor of PowerTrend Profits reiterates his buy ratings for two "Generals" that have faced near-term headwinds.

General Motors (GM) was hit by concerns about its vehicle recall; while the recall is not news, the House Energy and Commerce Committee announced an investigation into why it took the company so long to disclose the situation.

Even though there is some recall cost, it should be negligible to GM's multibillion dollar revenue stream. The greater risk is short- to medium-term market share loss and management credibility.

This recall is an easy reason for investors to sell the stock, but they are forgetting that GM is back to paying a dividend, introducing several new models that should ward off market share loss, and positioning itself to tap growing automotive markets outside of the United States, such as China.

Given the long-term focus that we have, I’m inclined to use any material weakness in GM shares on a short-term basis to add to your holdings.

Meanwhile, General Electric (GE) came under some pressure when it filed for an IPO of its North American retail finance business. GE clearly has stated its intended strategy to shift more toward being an industrial pure play. This IPO filing was the first step in that process.

This path shows me that GE continues to be focused on returning capital to shareholders. GE shares remain a buy at current levels.

GE's impressive backlog stood at $244 billion at the end of 2013, with 75% consisting of long-term contracts and higher-visibility revenue.

That provides very firm footing and strong outlook for your GE shares, which are trading near 12 times earnings and have a 3.5% dividend yield. GE shares remain a buy at current levels.

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