Why Things are Looking Up for GE

According yesterday's Forbes article, GE Catches Renewed Investor Attention As U.S. Economy Picks Up More Steam, now would be the time to buy shares of GE. After a five year high of $42 a share in October of 2007, GE was hit hard, when its price plummeted to $6.66 a share in May 2009. Its current price of $19.02 shows recovery, and analysts believe that with current economic conditions improving in the US, GE's price can once again reach $42. In addition, GE's stock is trading below the value of its assets. The fact that it is undervalued in addition to its continued profits make it clear that GE's stock will have a bright future.

As we learned in class, GE is a very differentiated company in terms of its scope, as it ventures into any industry in which it sees potential future profitability. I think that this broad scope, gives GE a special advantage as it will look to involve itself in industries that are beginning to grow in the US. GE is currently looking to diversify the types of energy production methods and systems it develops. Its particular focus on developing forms of cleaner renewable energy, like wind power, solar power, and cleaner coal could help it obtain growth and profits in the future. Current demand in the US and worldwide is growing for clean energy alternatives, and GE is being incredibly smart by staying on top of this trend. In addition, GE's presence in other highly-demanded industries, like software and healthcare will give it further opportunities to gain profit as the economy picks up.

I think, though, that the fate of GE Capital, which brings in the largest revenue of the firm's divisions, is more uncertain and could be a potential setback to GE's share price. Things have not been looking so bright in the financial services industry partially because of increased regulations by various governments, and this could clearly curtail some of GE Capital's potential profits. In addition, if the European sovereign debt crisis does not get resolved soon, it will be difficult for the industry to make a significant improvement in the short run. Despite all of the uncertainty in the industry, investment research analyst Damon Churchwell says that GE Capital should improve.

Ultimately, I think that GE is in a pretty good position in terms of hoping to get back to $42 a share. Although things in GE Capital might not rebound as fast as GE's other business lines, it has a large presence in enough growing industries to do well in this recovering economy.