Rising dividends… A share buyback program... And strategic
This combination of strengths shows
General Electric (NYSE:
-- 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%
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:
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
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
-- 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.
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.
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.
is on a buy signal, but not yet overbought. Williams %R, although
overbought, is on a buy signal.
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.
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