Motley Fool: General Electric’s bright future
Not all that long ago, General Electric (NYSE: GE) was a mega-conglomerate with its hands in a wide variety of businesses. Not anymore. GE has since sold or spun off a number of businesses (such as its financial units and NBC) and has returned to its industrial roots – but with a twist. Instead of just being a traditional manufacturer, GE is becoming a “digital industrial company,” combining its software and manufacturing expertise to create next-generation products.
Those offerings include gas turbines, jet engines, light bulbs, locomotives and other industrial products that connect to the internet. When combined with a subscription to GE’s Predix software, these new products will be able to run more efficiently and communicate potential maintenance issues, both of which can greatly lower operating costs.
That should allow GE to steadily steal market share and substantially grow revenue in its high-margin software division. If this works out as planned, GE’s bottom line looks well positioned for growth in the years ahead.
Market watchers believe that GE’s bottom line will grow by more than 12 percent annually over the next five years. That’s fast for a company recently trading at a forward-looking price-to-earnings (P/E) ratio in the teens. Throw in a dividend that recently yielded 3.2 percent, and GE looks like a stock patient investors can learn to love. (The Motley Fool owns shares of General Electric.)
Ask the Fool
Q: I see that Facebook has a market value near $400 billion. Isn’t that pretty high? – E.M., Walnut Creek, California
A: It depends on how Facebook is performing and what you think its prospects are. A company’s value is largely in the eyes of its beholders.
With Facebook, you might check out a few numbers to assess its value. Its price-to-earnings (P/E) ratio, for example, was recently 39. That’s far steeper than the S&P 500’s recent P/E in the mid-20s, but Facebook is growing much faster than the average company. Its revenue in 2016 topped $27 billion, up from $18 billion in 2015. Over the same year, profits surged from $3.7 billion to $10.2 billion. Fast growers tend to sport steep P/E ratios.
For more context, consider the approximate recent market values of Apple ($730 billion), General Electric ($265 billion), Google parent Alphabet ($575 billion) and Amazon.com ($400 billion). Looking at those, does a $400 billion value for Facebook seem reasonable? Think about how reliable its expected earnings and growth rates are, and how sure you are that it will still be around in five or 10 years.
Facebook is not without risks, such as falling out of favor, but many investors expect it to successfully generate revenue from its daily users, who number more than 1 billion. (The Motley Fool owns shares of and has recommended Facebook.)
Q: How can I look up a company’s ticker symbol? – F.L., Houston
A: The simplest way is online. Enter the company’s name into a search box at many major financial websites, such as finance.yahoo.com or caps.fool.com, and you’ll get the symbol. You’ll likely find much more information on the company there, too.
My dumbest investment
My dumbest investment is a weird one. In the late 1950s and 1960, a mining company aimed to profit from a cave in the Grand Canyon filled with bat droppings, a fabulous treasure of fertilizer. It built a cable system across the canyon to extract the stuff and bring it to a processing plant, where it was packaged for distribution and sale. The company experienced many mishaps and problems, though, and didn’t make me rich. – P., online
The Fool responds: It’s certainly an interesting story! It turns out that the U.S. Guano Co. leased the cave, which was estimated to contain 100,000 to 200,000 tons of bat guano.
It was very costly to build a tramway over a mile long, and the cable reportedly broke several times. Even worse, the cave apparently held much less guano than expected. One report said, “The company had spent $3.5 million to salvage 1,000 tons of guano, which sold for 69 cents a pound.” (That amounts to about $1.4 million in revenue.)
An odd silver lining in this cloud of a story is that a U.S. Air Force aircraft accidentally flew by and severed the cable, enabling the company, reportedly, to sue the Air Force and recoup some costs. A lesson here is to consider all possible risks when deciding whether to invest in a company. Remember that estimates can turn out to be quite incorrect.