Should You Buy General Electric?


There's nothing wrong with simply matching the Dow Jones Industrial Average . The premier market index has delivered strong returns over the decades, making more millionaires than you can shake a candlestick graph at. Index trackers like the SPDR Dow Jones Diamonds are a safe and easy vehicle for protecting your wealth over the long run.

But you wouldn't be buying individual stocks unless you wanted to beat the Dow, now would you?

Industrial conglomerate General Electric has crushed the Dow over the last three years, helped along the way by a generous dividend policy:

Dow Jones Industrial Average Chart
Dow Jones Industrial Average Chart

Dow Jones Industrial Average data by YCharts.

But past results are no guarantee of future performance. Is GE poised to stretch this outperformance over the next few years, or has the stock raced ahead of the company's true value?

Today's GE is fundamentally different from the conglomerate your grandfather knew. The company has been busy dislodging units that either don't produce sector-leading results or simply don't fit the company's core competencies anymore. Perhaps the most visible example comes from the NBC Universal TV and movie studio, which was sold to Comcast in a game-changing blockbuster deal. Meanwhile, the central GE Energy division is growing by leaps and bounds, and the financial arm has been bolstered by a series of bolt-on acquisitions.

CEO Jeff Immelt has refocused his grand old company on business opportunities that make sense. If you're looking for rampant growth markets, the company is even exploring the so-called "Internet of Things." Here, GE aims to understand and monetize the vast piles of data that's generated by sensors in its airplane engines, power plants, and so forth.

At the same time, Immelt also keeps a laserlike focus on financial fundamentals 101. The dividend payouts and yields inspire a boatload of confidence:

GE Dividend Chart
GE Dividend Chart

GE Dividend data by YCharts.

Look up "blue chip" in a dictionary, and you might find the classic GE logo next to the definition.

For GE, the recent financial crisis struck a blow, but management took advantage of the market's dip to make strategic bets in energy. If you're a GE investor, you need to understand how these bets could drive this company to become the world's infrastructure leader. At the same time, you need to be aware of the threats to GE's portfolio. To help, we're offering comprehensive coverage for investors in a premium report on General Electric, in which our industrials analyst breaks down GE's multiple businesses. You'll find reasons to buy or sell GE, and you'll receive continuing updates as major events unfold during the year. To get started, click here now.

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Originally published