Predicting the potential rebound of a quality Blue Chip stock is pretty easy to do. You don’t need to be an analyst with a CFA designation to figure them out. In fact, all you really need to look at is the company’s track record, and have a boatload of common sense. This is why I Like GE.
Let’s take a look at the company through the eyes of someone with common sense. Track record will tell you a lot since great companies almost always seem to find their way out of a tough situation. The advantage that a major Blue Chip has is…Predictability!
When you look at a company’s track record is you can see how they have performed in good economic times, bad economic times, and how they have rebounded or languished after a recession.
When Warren Buffett evaluates a company, he looks at the big picture. As an example, are earnings, dividends, and return on equity “generally” rising, or falling. It’s only natural to assume a company’s numbers will contract during recessionary periods, but it’s the general trend overtime tells the real quality of a company.
GE’s problems have been well documented, but I feel they have addressed the key issues, and are managing them effectively.
Recently, the company announced quarterly earnings of 0.28 per share, 7.3% above the consensus estimate of.26. As the recession continues into 2010, the company will continue to work its way through the issues at GE Finance, but we feel these problems are only temporary.
While earnings could be flat to slightly up for 2010, we are taking a longer term view of 3-5 years. With the problems of NBC Universal off its back, the company can now focus on its key businesses.
1998-2009 Earnings per Share
Earnings: .93, 1.07 1.29 1.41 1.51 1.55 1.61 1.72 1.99, 2.20, 1.78, .95
The average Earnings per Share over the past 12 years = $1.31
My 3-5 year Prediction: GE earnings will once again reach $1.31/ share, or possibly higher. The last time GE had earnings of around $1.31/ share, the stock was trading in a range of $28 to $60.
1998-2009 Dividends Per Year
Dividends: .42 .49 .57 .64 .73 .77 .82 .91 1.03, 1.15, 1.24, .82
The average dividends per Share over the past 12 years= .80 cents
My 3-5 year Prediction: GE’s dividend will rebound to at least .80 cents per share. This means that investors who had bought the stock at the current price of $16.20 will earn a dividend yield of 4.93%.
The last time GE paid a yearly dividend of around .80 cents per share, the stock was trading in a range of $37.80 to $28.90.
1999-2009 Return on Equity (ROE)
Return on Equity (ROE): 25.2% 25.2% 25.8% 23.8% 19.7% 15.2% 16.7% 18.4%, 19.4,17.3, 9.0
The average Return on Equity (ROE) over the past 11 years = 19.6%.
My 3-5 year Prediction: GE’s Return on Equity should once again rise above 15%. The last time GE had a Return on Equity (ROE) of around 15%, the stock was trading in a range of $37.80 to $28.90.
1998-2009 Stock Price
The company had a 3-1 split in 2000.
1998-2009 High and Low
High: 34.6, 53.2, 60.5, 53.6, 41.8, 32.4, 37.8, 37.3, 38.5, 42.2, 38.5, 17.5.
Low: 23.0, 31.4, 41.6, 28.5, 21.4, 21.3, 28.9, 32.7, 32.1, 33.9, 12.6, 5.7.
The average high over the past 12 years= $40.65.
The average low over the past 12 years= $26.09.
My 3-5 year Prediction: GE stock can easily trade back to a range of $26.09 to $40.65, giving investors a return of 61% to 150%.
Bottom-line:
- Earnings per share rebounds to around $1.31
- Dividend yield climbs to 80 cents per share yielding investors who buy now 4.93%
- Return on Equity rises above 15%
-3-5 year stock price of $26.09 (+61%) to $40.65 (+150%)
