GE Aerospace (GE)

(Market Call Minute.) Great company if somebody has $250 billion in their pocket and wants to double it. You would buy this, rip it apart and give the pieces to the shareholders. It’s a conglomerate, which goes up when it is a conglomerate and goes up even more when it isn’t a conglomerate.

They are deemphasizing the financial side, such as selling their helicopter side. That side of the business tracks more leverage and makes the debt to Market Cap look a little bit out of whack. If you could set that aside and look at the industrial side, then the debt is not so high. As they increase the industrial and deemphasize the financial, the ratio is going to get better. He likes it and could see $29 one year out.

If they spin off the financial business it could be a one-time dividend for shareholders. Usually this would unlock shareholder value. Prefers ABB-N, a pure play industrial play, which he owns. A 12 month time frame for GE may be too short.

4^th quarter results were mixed and not as good as street was looking for. Long term they are going back to their industrial roots.

The market is overbought so let it be your guide. The US market has a pretty good long time future. Prefers UTX-N

(A Top Pick April 19/13. Up 21.37%.) They have a railcar business, healthcare technology business, 25% of revenues exposed to energy on the services and pipelines side. Have run off the capital side and earnings are naturally going to be lower. What people miss on this is that it also brings down risk exposure.

Their problem in the last few years was due to the GE capital business which is still 45% in earnings. They are trying to shrink that to about one third in earnings. Very strong in industrial, engines, aerospace, power. Likes it but he wants to see financial contribution come down a little bit more before he gets comfortable getting in.

Stock is down over 9% since January 1 which presents a pretty decent buying opportunity. An industrial name, obviously on the cyclical side of things, and he does like the cyclicals. Thinks the company is pretty well-positioned for growth as the global economy goes higher and demand picks up in longer cycle things like infrastructure, power generation, aircraft engines, energy and water processing. 3.5% dividend yield should grow by 10% per year.

Surprised at the share price reaction this year. Thinks it looks very attractive where it sits today. A good barometer for global GDP growth. There is an aerospace component to it. He is working to decide if he should buy it here.

Infrastructure plays are now materializing. US and Cdn governments are forking out a lot of money to infrastructure. This company is now out of the financial, which was a fantastic move. Manufacture everything from light bulbs to large turbines. This is the place to be.

A good investment because they had been overly penalized due to the size of its financial services division. The company has been making acquisitions in the industrial and healthcare areas over the last few years. It plans to take its consumer finance division public and spin it out.

Just recently bought this because it was slowly being forgiven for its GE Capital problems. The multiple discount it was trading at compared to other industrials, would slowly be covered. That has started to happen. This month has been tough for them. Thinks they are going to be able to implement some good cost-cutting programs in concert with growth of their core businesses.

With the weaker Cdn$, General Electric (GE-N) or an ETF that is hedged to the Cdn$? He would argue against hedging the Cdn$. Hedging does not come free, it is very expensive. One of the real merits of global equities is that they are a volatility dampener in your asset allocations. If you are hedging the currency, you are not getting one of the key benefits. GE’s product portfolio is quite well-positioned because it has positions in aerospace, wind farms, turbines etc. One of the issues this company has had for several years is that it is so big that investors are not willing to give it a premier multiple because of its big exposure to GE Financial.

These companies have all done a very good job of managing investor expectations, so analysts have come out with wildly optimistic earnings expectations and the company slowly guides them down lower and lower as the quarter progresses, which allows the companies to make or beat estimates that are a week or 2 old. This company does that. They are making noises about continuing to de-emphasize the financial services aspect. Have some wonderful medical device businesses inside their operations. This is one you could own, but realize, it still has a substantial amount in their financial services component.

We are in a recovering global economy and this is a global company. Not trading at a very high multiple. Very nice yield. One of the issues has been GE Capital, which is less and less important to them on a revenue basis. This is never going to get the kind of returns on equity or the multiple they got when GE capital was a big part of the organization. Should do quite well with the way the global economy is moving. It could get to $30 in the next 1-1.5 years.