GE rates a consensus 'buy'

Your Money

March 28, 2004|By ANDREW LECKEY

I have been interested in General Electric Co. for some time now and bought a modest number of its shares. It seems to be a good company, but I haven't been impressed with its stock performance. What's the outlook for the company?

- C.V., via the Internet

The previous domain of Jack Welch remains a company of big personalities.

The most visible change at the company this year will be Brian Williams taking over for Tom Brokaw as anchor of NBC Nightly News after the presidential election in November.

But current GE Chairman and Chief Executive Officer Jeffrey Immelt is no small potato, either. According to a filing with the Securities and Exchange Commission, Immelt received $7.4 million in compensation last year that included salary, bonus and "other compensation," such as use of a company aircraft and a car.

GE (GE) stock is up 7 percent this year, after a gain of 31 percent last year and a 38 percent decline in 2002. The company believes it can continue to boost its dividend payouts.

Profits rose 45 percent in the most recent quarter, and Immelt said 2004 is exhibiting "strong momentum." Revenue in Eastern Europe, Russia and Iraq should more than quadruple to $5 billion in 2005.

However, the company missed its target of 10 percent annual earnings growth because of declines in aviation and energy markets. Results of the GE Medical unit also were disappointing.

GE warned in an SEC filing that a hypothetical interest rate increase of 100 basis points for all of 2004 would decrease its earnings by $100 million in industrial operations and $200 million in financial operations.

GE products range from light bulbs and refrigerators to broadcasting and jet engines. The biggest financial risks involve the lending in its GE Capital Services division.

Growth is being driven by acquisitions. Last year, it bought British health care company Amersham for a hefty $10 billion, announced a merger of NBC with Vivendi Universal's entertainment assets and sold $4.5 billion in insurance assets. It is spinning off a 30 percent stake in its insurance operations into a new firm called Genworth Financial.

Consensus rating on GE stock from the Wall Street analysts who track it is a "buy," according to First Call, a Boston research firm. That consists of nine "strong buys," five "buys" and five "holds."

GE's earnings are expected to increase 1 percent this year vs. the 7 percent rise forecast for the diversified industrials industry. Next year's projected 13 percent increase trails the industrywide expectations of 15 percent. The expected five-year annualized growth rate of 10 percent is 1 percent less than its peers.

I am a 64-year-old retiree. In March 2000, I invested $30,000 in AllianceBernstein Technology Fund and saw it decline to $11,000 in value. Will this fund bounce back?

- R.L., via the Internet

Because the fund and its parent company became entangled in the mutual fund trading scandal that favored fat-cat clients over average folks, it now has a new and unproven portfolio manager.

Parent company Alliance Capital Management agreed in December to pay $250 million for defrauding mutual fund investors by permitting market timing in some of its funds in exchange for fees. Gerald Malone, the manager of AllianceBernstein Technology since 1992, was let go by the company after regulators alleged that he permitted timing in the fund.

Technology analyst and institutional money manager Janet Walsh replaced Malone and is running AllianceBernstein Technology with Andrew Frank, co-manager since early 2002.

"Given the ethical lapses and the fact that we don't know much about new manager Janet Walsh's management skills yet, I wouldn't buy this fund," said Laura Pavlenko Lutton, an analyst with Morningstar Inc. in Chicago. "For existing shareholders we understand that selling isn't always practical due to taxes and other considerations, so we're suggesting that they [at least] consider selling."

The $1.4 billion AllianceBernstein Technology Fund (ALTFX) is up 47 percent over the past 12 months to rank in the lowest one-fifth of technology funds. Its three-year annualized decline of 11 percent puts it at the midpoint of its peers.

The fund will continue to invest in established technology firms with double-digit growth rates, avoid making big bets on individual names and employ a buy-and-hold strategy. It has begun to add more foreign companies to its portfolio.

Half the fund's portfolio is in hardware stocks, and it holds more blue-chip company names than many of its competitors. Top holdings include Microsoft, Intel, Dell, Cisco Systems, First Data, Electronic Arts, eBay, Sanmina-SCI and Taiwan Semiconductor Manufacturing.

AllianceBernstein Technology "A" shares require a 4.25 percent "load" (sales charge) and $1,000 minimum initial investment. The annual expense ratio is 1.85 percent.

I'm looking for a safe investment for some money I plan to use in retirement. What are TIPS?

- M.P., via the Internet

Baltimore Sun Articles
Please note the green-lined linked article text has been applied commercially without any involvement from our newsroom editors, reporters or any other editorial staff.