27 Feb 2009

The market was all over the place this week. We got a few more details on the banks stress test and a little more info on what the FED was going to do with the banks; which looks like they are not going to nationalize but just dilute the common share holders. With time still really uncertain, we did finally get some good news from GE. GE cut their dividend to ten cents a quarter to help ensure their AAA credit rating and save them 9 billion dollars a year. This will help them add to their 48 billion in cash reserves so they will stay well capitalized. The company also reiterated that they are expecting to make 5 billion in profit this year. I believe that this is a good time to start looking at GE. With its dividend cut to $0.10 it still pays 4.44% yield at a $9.00 share price. I believe that we will see GE stock price fall for a little while longer. But after it breaks down to $7.50 range I would be looking at it. Now this trade is not for the short term. I am recommending GE around $7.50 as a long term play; I am talking like 4-8 years. By that time things in the market will have gotten better and with the size and money that GE has it should take market share though all of this turmoil. I would not be surprised to see GE in the realm of $15.00 to $20.00 in 4-6 years. At those prices that is a 100-150% increase. I would not go out and spend all my money on GE when it hits $7.50 that is just the time I would start buying. When buying a stock like this you don’t want to buy all at you want to dollar cost average. It is almost impossible to pick a bottom of a stock, but if you’re dollar cost averaging you will be in around the base once you average all of your purchases.
The other stock I believe that will be a good stock over the next 2-5 years is MO (Altria). This tobacco company has virtually no debt and is currently handing out a dividend that is yielding 8.5%. With no problems with bad loans or capitalization, there is no current reason why this stock should not continue producing, and maybe even raise their dividend over the next 5 years. Also this company is projecting growth of 3-6 % this year. In a horrible market like this, if any company is projecting a growth, it is something to take notice of. I am looking for this stock to reach into the $25.00 to $30.00 dollar range over the next 5 years, and the whole time returning a great dividend. This stock is a buy any time it is under $15.75. I currently own both GE and MO and plan on buying more shares in the near future. These companies have been through recessions before and came out strong and will again.
One final thing, now that gold has come down below $950.00 like I said it was going to, when it hits $925.00 I would start picking up small amounts because of the protection it offers. I believe that when we do start coming out of this recession all the money the FED has been handing out is going to cause hyperinflation. Once again gold will be a safe haven.