Marcial: Could GE Be a Cheap Global-Comeback Play?

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It has signed up to use the Federal Reserve's Commercial Paper Funding Facility in order to facilitate and improve customer liquidity. The Fed program, says a GE insider who asked not to be named, could accommodate $90 billion of liquidity for GE and GE Capital.

"So it appears that the short-term liquidity issues have been resolved and we can go back to focus on our business model," says this insider. GE's restructuring plans call for a downsized financial operation, notes O'Neill of Hilliard-Lyons, with 60% of earnings to come from industrial businesses and about 40% from financial operations. "The real estate portfolio is being pared down and more consumer finance operations could be sold," says the analyst.

Of the 20 analysts polled by Bloomberg, seven recommend buying GE shares and 12 rate the stock a hold. Only one recommends selling the stock.

"We believe the stock remains attractively valued," says David Bluestein, an analyst at investment firm UBS (UBS), who rates GE, a client, a buy. Earnings could rebound quickly and sharply once credit-market conditions stabilize and general economic conditions begin to improve, he adds. GE has one of the best infrastructure franchises worldwide, says Bluestein, with solid organic growth rates, exposure to favorable secular trends, and a large installed base of service businesses.

healthy cash flows ahead

"GE's valuation is depressed mainly due to the financial crisis that has called into question the balance sheets of even the most creditworthy institutions," notes Richard Tortoriello, an analyst at Standard & Poor's, who rates the stock a hold, with a 12-month price target of 25 a share. (S&P, like BusinessWeek, is a unit of The McGraw-Hill Companies (MHP).)

"With the recent capital infusion and the government loan [rescue] program, [S&P] believes GE Capital's funding position is strong, and we continue to expect good cash flows from GE's industrial businesses, which should enable GE to maintain its current dividend through the end of 2009," says Tortoriello. He also sees GE using its relatively strong balance sheet to purchase attractive financial assets at currently bargain prices. The analyst expects GE to earn $1.96 a share in 2008 and $1.97 in 2009, down from from 2007'S $2.20.

The diversified company remains a vast enterprise, with products and services ranging from aircraft engines, power generation, water processing, media and entertainment, and security technology. GE is a one-stop shop for playing the global economy. So if you believe a recovery is in the cards, it could be an inexpensive way to bet on a comeback.

Unless otherwise noted, neither the sources cited in Gene Marcial's Stock Picks nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

Marcial writes the Inside Wall Street column for BusinessWeek. In 2008, FT Press published the book Gene Marcial's 7 Commandments of Stock Investing.