Filed under: Rants and raves, General Electric (GE), General Motors (GM), Serious Money, Headline news, Stocks to Buy
A recent Barron’s had a cover story featuring General Motors (NYSE: GM) which I’ve been pondering for a while. Somehow the story did not get me all that excited despite the boldness of the headline reading “BUY GM.”
More attuned to the words that followed – “GM is a risky bet” — I wondered why they wouldn’t feature something with possibly equal potential and far less risk. If you read the journal cover to cover, you might have taken note of the fact that there were two articles highlighting General Electric (NYSE: GE).
In the first, Michael Santoli extols the virtues of owning GE compared to a 10 year Treasury note which offers security but no upside potential. He mentions the high yield, low P/E, strong businesses and the fact that current CEO Jeffrey Immelt purchased shares in the open market for $3.5 million.
Later in the same issue, Tom Sullivan writes that GE is a good bet, but he does include a few caveats. In particular, some concern that Immelt might chase higher riskier returns in an effort to boost share price which has been languishing for many years.
GE has less competition for its products primarily focused on water, power and finance. The last is the biggest question mark, creating some fear in the near term to the over all credit market and the unknowns. At the same time it offers a 4.5% yield compared to none a dividend & yield:1.00 (7.70%) for GM, and then there is the seldom discussed fact that GE is a triple-A rated company, which are few and far between these days.
General Motors shut yesterday at $13.19 near its 52 week low of $12.63. Barron’s likes the fact that GM has reduced its labor, health care and pension fund costs under recently negotiated new agreements and that foreign sales are growing at the same time. On the other hand, the cost of plastics (made from oil), steel and aluminum, to name just a few commodities, are going up. Transportation costs are also going up, and new foreign auto makers in India, China and Korea are joining the Japanese competition.
GE shut yesterday at $27.59, also near its 52 week low of $27.20. There is no question that with GM’s greater risk might come greater reward, however, there are too many “ifs” for me. All the “if this” and “if that” in the articles I read does not make me comfortable. I view that as an equation where prognosticators are trying to come up with an answer having one known and multiple unknown factors that will affect the outcome.
Sheldon Liber is the CEO of a small private investment company and the principal for design and research at an architecture & planning firm. He writes the columns Chasing Value and Serious Money. Disclosure: I own shares of GE.
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