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A Bullish Case for General Electric

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John Dessauer argues that General Electric offers investors an opportunity for modest but consistent returns over the next several quarters.

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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.

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 feel bullish about General Electric (NYSE: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. The company 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.

General Electric is a solid, long-term investment that will reward shareholders through dividend increases and capital gains. Consider a 12-month stock price target of $30.

Editor's Note: This John Dessauer's Outlook article by John Dessauer was originally syndicated by MoneyShow.

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No positions in stocks mentioned.
The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

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