General Electric Company (GE): 18 Billion Reasons to Buy this Stock

If General Electric continues to decrease the size of GE Capital, the company could find that it’s missing a great opportunity to add to earnings and value for shareholders. It’s one thing to bring this unit back in line with the company’s other divisions, it’s something else to run scared as the economy turns around when GE Capital could really benefit.

What’s Driving This Thing?
To figure out if GE is a good investment, you have to understand what is driving the company’s stock price. One positive from the company is their operating margin has stayed consistently higher than their peers. In the last three months, GE’s margin came in at 19.27%. By comparison, United Technologies reported the second best operating margin of the group at 13.93%, whereas The Boeing Company (NYSE:BA)’s margin came in at just over 8%, and Johnson Controls, Inc. (NYSE:JCI) reported a margin of just 3%.

An additional factor behind GE’s popularity is that the company offers the highest yield of its peer group. At current prices investors are getting paid about 3.2%, compared to 2.25% at United Technologies Corporation (NYSE:UTX) and 2% or less at Johnson Controls, Inc. (NYSE:JCI) and The Boeing Company (NYSE:BA).

While a high-yield and a higher margin are positive factors for the stock, there might not be anything more important than the company’s plans for the $18 billion it received by selling NBCUniversal to Comcast Corporation (NASDAQ:CMCSA). GE has essentially said that it plans to return almost 100% of the proceeds to shareholders through share repurchases. At current prices, this $18 billion would equate to retiring over 7% of the company’s diluted share count.

If you add together a 3.2% yield, an earnings growth rate of near 11%, and then boost that earnings growth from 7% less shares outstanding, you can understand why the stock should do well. If all goes according to plan, investors should be very pleased with the final result. If the economy continues to improve, General Electric Company (NYSE:GE)’s industrial divisions should drive future growth.

Chad Henage owns shares of General Electric Company. The Motley Fool owns shares of General Electric Company (NYSE:GE).

The article 18 Billion Reasons to Buy this Stock originally appeared on Fool.com.

Chad is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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