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Fallen Favorites: General Electric, Intel


It is hard to eliminate the noise completely and investors should be well aware and educated on what exactly is going on.

One of the most daunting tasks for the individual investor is to try and sort through all the noise that is disseminated on any given day regarding the financial markets.

It is very easy to fall into the herd mentality, especially when the noise regarding a particular topic is so loud. While the topics of late are troubling, people should understand that the media's job is to always project extremes, in order to keep people on their toes and engaged in its coverage. While it can be viewed as taboo by many, watching the trending price action of a stock can always help the individual to see the picture a bit more clearly.

Take, for example, General Electric (GE). Since the middle of 2004 through 2006, the stock has been moving in a fairly narrow range, roughly between $32 and $38. In late 2006 the stock attempted to break out of this range but was quickly shot down, but reversed before touching the bottom end of its previous range.

Once the stock had stabilized a bit, it once again made a charge towards resistance levels and was able to take them out with force in June and July. Despite the sideways movement for the last three years, the stock has been growing revenues at a steady double digit pace and has a trailing P/E of 20, which is at the low end of its historical annual average. Despite the noise from the media, General Electric's price action is saying that the stock wants to go higher over the longer term and is worth keeping an eye on. Furthermore, the stock pays a healthy 2.8% dividend which isn't all that bad while waiting for the dust to settle and investors to come back out and buy stocks.

Another fallen favorite from days gone by, and worth considering tucking away, is Intel (INTC). While the stock is currently off its recent highs of $26.52, investors will note that the stock has been in a longer-term down trend since its strong rally in 2003, notching a series of lower highs and lower lows. Earlier this year however Intel broke out above this important area of resistance and has since gone on to consolidate this advance within the $24 - $25 area, where it stands today.

From a fundamental standpoint Intel is selling at 29 times trailing earnings while estimates show it growing 2007 EPS at 35% and 2008 at 22%. So, in addition to the chart signaling that the stock is possibly starting a new longer term uptrend, the fundamental case for Intel having room to move higher due to trading at an attractive multiple can be made as well.

Regardless of how attractive the chart formations or fundamentals may be, one should always use time as a tool to diversify risk and consider averaging into any position that is going to go into safe keeping. Furthermore, one should periodically review the stock to make sure the trends remain in place and allow the continued price action to be a guide going forward. If the trend changes and new lows set in, this may be a signal that the stock is now under distribution and should be sold.

It is hard to eliminate the noise completely and investors should be well aware and educated on what exactly is going on. However, being able to understand and see some of the action taking place in some potential longer term holds may just be the perspective needed in order to keep your head clear and focused on the future.
Positions in INTC, GE

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