April 11th, 2008 by Potato

“It’s a good patient money buy. It’s a great company that isn’t going anywhere. If I was setting up a portfolio for a widow, GE would be at the top of my list of picks… but I think it might be too conservative for you.”

This was the gist of what my dad had to say when I called him this morning to talk about GE, which just reported some disappointing first-quarter results. I’ve been keeping an eye on GE for a while, figuring that I would buy in around $32 (of course, the few days when it was that low the market was hiccuping so bad I was scared away, even though I shouldn’t have let fear affect my buying), which is where I decided that there was very little downside. At the moment, GE has gone down over 10% on the earnings news to trade at just a hair below $33 (US), which is close enough that I’m seriously thinking about it again.

For one thing, it neatly patches a hole in my diversification. Since I am young* and open to taking risks, a lot of my non-index portfolio is in some risky stocks (such as Q, QSR.UN, and banks — which shouldn’t be this risky!) in hopes of getting higher returns. But I’m still not willing to suffer too much of my portfolio in high-risk things, so I also have some safer stuff (FCE.UN, YLO.UN), but my portfolio is nonetheless really poorly diversified as I mentioned in a previous post about index funds. There looks to be a place at the table for GE, though perhaps my biggest argument against that is that any patient money I could put in GE I could equally put into an index such as the DJIA. Of course, some that patient money is sitting in my high-interest savings account at the moment making a lousy 3.35% (why does that slide down more every week I check it PCF?!), while GE is offering a famously stable dividend of 3.8%. I also think that it might outperform the index for a while.

There are two reasons I might think that. The first is that it might be oversold today after this report. There are some worrying signs in it: GE missed forecasts, and more importantly, profit was down while revenue was up, so something troubling happened to their profit margins/efficiency there. However, a part of the let-down was certainly related to the financial sector/credit markets lately, and I think that’s going to be a temporary issue, offering them a big chance to rebound (note that when discussing my patient money, temporary could be up to 2 years). GE, being a massive conglomerate with its fingers in just about all the pies, also has a wind turbine and nuclear generator division, which I think could be big winners in the decades to come. Of course, being a massive conglomerate it’s hard to say if those winners will be enough to raise this massive company to outperform the indexes, but my hopes are high.

* – or so I continue to believe, in spite of grey hairs and bald spots.

Update: I haven’t even posted this yet, but GE dipped more into the $32.50 range, so I bought some at $32.53. The exchange rate fee (2%, ouch!) makes me think I may have been better off with that index fund after all.

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