Berko: GE a great choice for portfolio
Friday, April 11, 2014 7:00 AM
Dear Mr. Berko:
I know we should own some foreign stocks, but I don’t want to own a stock that trades on an exchange in another country. Can you recommend a foreign stock that is listed on an American stock exchange and also does some business in the U.S.? I know this is very narrow-minded, but as a retired member of the armed forces who has served this country in hot spots all over the world, I’ve become partial to “made in America” or, as some might say, “traded in America.” I am now 55 and do private security work. We have just over $1.7 million totally in stocks you’ve recommended since early 2001, when my wife first discovered your writings. I’ve enclosed our portfolio, including our cost basis. As you can see, we have $192,000 in cash and need to put about $50,000 of that to work.
J.L., Oklahoma City
Jumpin’ Jehoshaphat, you sure came into a potload of money in January 2009, and you sure have some mighty impressive profits. However, you’re giving me credit for over a dozen enormously profitable issues I never recommended, including Allegiant Travel Co., Alaska Air Group Inc., Copa Holdings and Bristow Group. I guess you knew something about private military charters back then. Meanwhile, I think you should start changing your luck and purchase 2,000 shares of General Electric Co. (GE-$26.05). This company’s 305,000 employees generated $146 billion in revenues, about $70 billion from sales generated in the U.S. and $76 billion in sales from over 100 foreign countries. GE also trades on the New York Stock Exchange and is one of the original 12 companies that composed the Dow Jones industrial average way back in 1896.
GE is also one of the largest and most diversified technology and financial companies on the planet and should be one of the core holdings in every growth and income portfolio. Though revenue comparisons to several years ago are lower, investors should be mindful that GE exited a number of sluggish non-core markets, including the divestiture of its huge GE Capital division. The impressive cost savings of this partially streamlined company (more than $2 billion annually) report directly to GE’s bottom line. The result is an improving net profit margin, from 8.4 percent a couple of years ago to 11.4 percent in 2013 and to an expected 11.8 percent in 2014. So with very little luck, GE could report 2014 earnings of $1.80 a share, up 9 percent from last year’s $1.65. There is certainly no denying that this very impressive blue-chip company is being managed full steam ahead, and recent acquisitions in key fields (water, power and aerospace) mean that GE should greatly increase its profitable market share in these sectors.
Many of us remember GE as light bulbs, electric motors and household appliances. Yes, that’s still GE, but today this classy company gets billions in revenues from aircraft engines, mining, information technology, water processing, oil and gas, lighting, chemicals, business and consumer finance, nuclear power generation, medical imaging, pumps, pipelines, compressors, locomotives, traffic control, real estate, global banking, marine and military engines, missiles, software, health care, wind power, gas turbines and drug discovery, and this list continues. I don’t know of any company that is as successfully diversified. And some on the Street (Carl Icahn, for one) believe that the breakup value of GE could be about $105 a share.
However, I’m certain GE shares won’t match the performance of Google, Apple, NetSuite, Priceline.com, Salesforce.com, Amazon.com or Netflix or the performance of a few others in your portfolio that I also did not recommend.
It seems to me that your account is too aggressive, and at your age and stage, you ought to tone down the volatility with a selection of growth and income issues. Your choices in the past have been excellent, but perhaps it’s time to hire an experienced money manager and ensure your continued excellence.