One of the World's Largest Companies Could Make You a 34% Profit


Rising dividends… A share buyback program... And strategic acquisitions.

This combination of strengths shows General Electric (NYSE: GE ) -- one of the world's largest companies -- is again on a roll.

In mid-December, the blue-chip company announced a 17%dividend increase on top of the 20% dividend hike earlier this year. This brings GE's forward annual dividend to an attractive 3.2%.

Additionally, GE recently announced an aggressive buyback of preferred securities sold to Warren Buffett's Berkshire Hathaway (NYSE: BRK-B ) during the heart of the financial meltdown. At the time, the sale was used to raise money for the struggling GE Capital division. But, this year, GE Capital expects to bring in more than $3 billion inprofit , with risingearnings projected for the coming years.

GE is also pursuing a number of strategic acquisitions, focused primarily on power generation, specifically in offshore wind and solar power plants. It recently acquired Wellstream, a British company whose flexible pipe products are used in subsea energy development projects. The $1.3 billion acquisition should help GE further penetrate the offshore energy market. GE is also in talks with Saudi Arabia to develop an atomic energy program.

As theeconomy chugs along, GE expects to see rising demand across its broad portfolio, from train locomotives to medical imaging devices, to LEDs. The company also anticipates strong international growth, especially in growing markets like China and India.

All-in-all, GE estimates sales will rise up to 5% in 2011. And the company projects to have as much as $30 billion in cash by 2013.

Technically, GE appears bullish. The stock has been in a major uptrend since hitting a 15-year low of $5.50 in March 2009.

Shares recently broke important resistance -- which has become new support -- around $16.56, the current intersection of the 10- and 40-week moving averages. In breaking above this key resistance point, GE bullishly broke out of a long-standing ascending triangle formation.

The stock is now in a minor accelerated uptrend and testing the upper Bollinger band which currently intersects at $17.80. Significant resistance is not until $19.43, the stock's March 2010 peak. However, according to the measuring principle -- calculated by adding the height of the triangle to the breakout level -- GE could reach as high as $23.73 ($16.56 - $9.39 = $7.17; $7.17 + $16.56 = $23.73).

The indicators are bullish.

The Relative Strength Index (RSI) downtrend, which formed in March 2010, was broken in early November. The indicator is now in an uptrend and rising. At 60, it is above the key 50 juncture, but not yet overbought.

MACD has just given a buy signal, particularly significant since it occurred around the "0" mark. The MACD histogram is poking its head into positive territory. Stochastics is on a buy signal, but not yet overbought. Williams %R, although overbought, is on a buy signal.

Fundamentally, GE's earnings could carry the stock higher.

In mid October, the world's second largest company reported mixed second-quarter results. Although revenue slipped, earnings surged.

Revenue fell 5% to $35.9 billion, compared with $37.8 billion in the year-ago quarter. A decline in industrial equipment sales, such as jet engines and rail locomotives, contributed to the dip.

For the 2010 full year, analysts predict revenue will drop 4.3% to $150.1 billion, from $156.8 billion in 2009.

By 2011, analysts predict revenue will be $145.4 billion, a 3.1% decrease from the previous year. However, by this time, international demand may help spur GE's growth.

The earnings outlook is upbeat. With continued cost-cutting, third-quarter earnings increased 32% to $0.29 from $0.22 in the year-ago period. The company expects 2010 to be a positive year, with earnings rising 7.8% to $1.12, compared with $1.03 in 2009.

By 2011, demand for GE's products should increase in countries like China and India. The 17 analysts who follow the company expect 2011 earnings to increase 13.4% to $1.27.

Action to Take --> Given that GE shows solid earnings growth potential and is technically strong, I recommend traders go long on the international giant. My recommended stop-loss is $14.61, just below the lower Bollinger band. Based on the measuring principle, my target is $23.73. Based on Friday's closing price of $17.70, you could expect to make as much as 34.1% with this trade.

-- Dr. Melvin Pasternak

Dr. Melvin Pasternak is one of the most experienced market technicians in the nation and Chief Trading Expert behind Double-Digit Trading. With more than 25 years experience...  Read more.

Disclosure: Neither Melvin Pasternak nor StreetAuthority, LLC hold positions in any securities mentioned in this article.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

© Copyright 2001-2010 StreetAuthority, LLC. All Rights Reserved.

This article appears in: Investing , International , Investing Ideas

Referenced Stocks: GE

Melvin Pasternak

Melvin Pasternak

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