America’s largest industrial conglomerate ought to be a fairly reliable barometer for the economy and stock market. But General Electric Co. looks more like a contrarian indicator. Its robust fourth quarter results vindicate boss Jeff Immelt’s reshuffling of the portfolio to focus on businesses that can outpace the US economy. With a fat order book and a triple-A credit rating, GE looks all set to outperform the market. After the US market’s worst three-day plunge in five years, investors in equities were desperate for some good news. GE obliged. The maker of turbines and light bulbs delivered 17% earnings growth in the fourth quarter and reaffirmed its guidance for at least 10% growth this year.
It looks like Immelt’s $100 billion (Rs39,300 crore) frenzy of deal-making since taking the helm in 2001 is finally be paying off. By focusing on faster-growing businesses and emphasizing overseas opportunities, GE hopes to expand its revenue at two-three times the rate of US gross domestic product growth. It may do even better. While the economy flirts with recession, GE expects 10-15% revenue growth this year, thanks in part to a $44 billion order backlog for infrastructure equipment in places such as China, India and Latin America. Of course, things look less rosy on the home front. GE’s forecast calls for a 20% drop in earnings at its financial arm, GE Money, and delinquencies in the US are on the rise. Still, GE has managed risks better than its competitors, avoiding collateralized debt obligation exposure and jettisoning its subprime mortgage business last summer.
What’s more, GE may soon be in a position to scoop up distressed portfolios for a song, a tactic that worked to its advantage in previous credit crunches. GE shares rose more than 4% after its announcement, but there may be more room to run. At $34, it is selling for just 14 times estimated earnings, a discount to the S&P 500. The company also raised its dividend 11% and announced a $15 billion share buy-back plan. Considering the outlook for the rest of the market, GE should command a premium.