GE Stock Could Be Undervalued
Most people think of General Electric Company (NYSE:GE) as an industrial company, yet it has deep roots in Silicon Valley. Investors often undervalue how much of GE stock is built on generations of ground-breaking technology.
You may wonder why this distinction even matters. It seems like a minor detail that’s interesting, but not all that important. It certainly couldn’t matter to you or your portfolio, right? If you own GE stock, then you couldn’t be more wrong. Of course it matters.
GE is an owner of technology patents. It also has deep enough pockets to absorb any firms it needs to complement its offerings. That is a deadly combination, especially considering the weak economy.
It’s at these times, in particular, that you want to avoid stocks that could crumble under stress. But you also don’t want to hide in blue-chip stocks that yield almost nothing!
So what’s a trader to do in this kind of bear market?
Finding Blue-Chip Growth
Solution: look for a heavyweight that happens to be riding a popular trend.
Think about Walt Disney Co (NYSE:DIS) as an example. It is the definition of a powerhouse—an established player—in its industry.
Yet DIS stock more than doubled in the last five years. The share price was even higher in November, but concerns over the health of ESPN dragged it lower. Regardless, the material point is that Disney benefitted from a growing appetite for superhero movies.
After all, Disney owns Marvel Studios—it simply rode the trend to higher capital gains.
GE is a similar, albeit parallel, situation. Last year, the company devoted $500 million to a little-known initiative called “Predix Cloud.” It is a one-stop shop for GE’s clients to buy equipment, computers, data centers, and software to connect it all together. (Source: “GE Seeks to Sell Its Own Industrial Cloud-Computing Technology,” Bloomberg, August 5, 2015.)
You may not have heard of it. These kinds of initiatives rarely make the front page, because they’re not flashy enough. But they can earn a ton of cash for GE.
The company was already using the software for its internal operations. But then GE noticed a trend, a trend of companies looking to digitize their infrastructure. All they have to do now is sit back and ride the wave.
Analyst Boosts GE Stock Outlook
That’s why I’m so bullish on GE stock. And I’m not the only one who feels that way. Analyst Efrem Hoffman believes that GE has a really good shot at more than doubling its share price. Using the top end of the 52-week range, GE stock could rise 125.5% by 2017.
And that’s not including the 3.2% dividend yield.
Companies that recently had an initial public offering (IPO) are attractive in strong economic conditions, but we simply don’t have that scenario. We are trading in an era of sudden shocks, where one thing after another drags the economy down. A lot of companies aren’t prepared for that.
You want to keep an eye out for strong balance sheets and non-cyclical revenue. Those are two factors that can help you weather the coming storm. From my vantage point, GE stock is one of the few that may fit the bill.