General Electric Is Going Back to Its Industrial Roots

09/22/2015 7:00 am EST

Focus: STOCKS

Since this American multinational conglomerate corporation is preparing to sell-off another non-core business, Chris Lau, of Kapitall.com, takes a technical look at the year-to-date performance of its stock, because as he puts it, "Selling non-core businesses and focusing on main strengths is generally a good move for companies."

After selling GE Capital in April for billions, General Electric is preparing to sell-off another non-core business.

In April, General Electric (GE) announced plans to shed its finance assets. The conglomerate is delivering on that plan and is now looking for a buyer for its asset management arm.

Selling non-core businesses and focusing on main strengths is generally a good move for companies. For GE, management’s focus is shifting back to the industrial sector. The sale of GE Asset Management will still be a separate transaction from the sale of GE Capital, which has hundreds of billions in asset under management.

The sale of the asset management firm should lower GE’s exposure to risky financial assets. Industrial assets are boring but predictable and the asset sale will bring in cash, improving GE’s balance sheet.

GE may use the proceeds of the sale to buy back shares or boost dividends. The company could even leave the cash in its account, waiting instead for acquisition opportunities that would strengthen its core businesses.

After trading at 52-week high of $28.68 in early April, GE’s stock fell steadily throughout the summer.

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Honeywell (HON) also fell recently. The industrial goods maker has a 2.08% dividend yield while GE offers a higher yield above 3%; however, GE will not increase its dividend for the next two years. Back in April, GE said, “the real big incremental part of the buyback probably doesn’t start until the second half of 2016.”

For now, GE appears to be an investment that deserves a spot on the watch list. As it sheds more assets, the company will become more stable.

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1. General Electric Company (GE): Operates as a technology, service, and finance company worldwide. Market cap at $253.02B, most recent closing price at $24.80.

2. Honeywell International, Inc. (HON): Operates as a diversified technology and manufacturing company worldwide. Market cap at $76.89B, most recent closing price at $98.04.

(Monthly return data sourced from Zacks Investment Research. All other data sourced from FINVIZ.)

By Chris Lau of Kapitall.com

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