AHEAD OF THE TAPE

Is GE’s Stock Ready to Get Back Into Gear?

By SCOTT PATTERSON
April 13, 2007; Page C1

Can General Electric’s shares become the Rip Van Winkle of Wall Street, awakening after years of slumber?

GE’s stock appears cheap, selling at 14 times 2008 estimated earnings per share, the lowest such ratio since September 2002, according to Standard & Poor’s.

The giant conglomerate, which has a market value of $359 billion, reports first-quarter earnings today. Analysts surveyed by Thomson Financial expect net income of 44 cents a share, up 10% from last year.

While earnings are rising, GE shares are down 5.5% so far this year. A big reason is the widespread view that its massive girth curbs its ability to grow.

Chief Executive Jeffrey Immelt’s game plan to combat GE’s lumbering-giant label has been to expand into booming businesses such as aerospace and health care.

Another strategy: Move away from the U.S. Mr. Immelt “has been tying businesses to very strong long-term growth trends in the global economy,” said S&P analyst Richard Tortoriello.

Several of GE’s U.S.-focused businesses -- NBC Universal, mortgage lending and plastics -- have been dead weight.
But its overseas operations are on the rise. Global revenue at GE rose to 49% of sales in 2006, from 47% in 2005 and 45% in 2004.

The overseas businesses are behind the growth of one of GE’s largest units, known as Infrastructure, with businesses such as aviation, transportation and oil-and-gas services and equipment. Infrastructure revenue rose 15% in the fourth quarter from last year, accounting for 32% of GE’s sales, according to Revere Research of San Francisco.

There’s a catch to this global strategy. Weakness in the U.S. could spill over to the rest of the world. As Mr. Immelt said in GE’s 2006 annual report:  “The engine of global economic growth has been the U.S. consumer....”

If investors remain worried about the U.S., GE’s global ambitions may not be enough to push its shares out of bed anytime soon.

Data May Suggest Economies Walking on Their Own Paths

The U.S. has long been seen as the locomotive for the rest of the world’s economy, but investors and policymakers are hoping the two have decoupled.

One consequence of the world’s dependence on the U.S. over the past decade has been the steady increase in the trade deficit, which soared to a record $764 billion in 2006, from $104 billion in 1996, amid lackluster homegrown demand in the developed economies of Japan and Europe.

Lately, U.S. economic growth has weakened, while the rest of the world has been in fine fettle. In the fourth quarter, economic growth for both Japan and the euro-zone outpaced U.S. growth. That meant they were picking up the slack the U.S. has been reeling out. It also meant better demand for U.S. products from abroad -- one reason the trade deficit has improved in recent months.

Monitoring the trade deficit, then, might be the best way to determine if the hoped-for decoupling process is really happening. Economists polled by Dow Jones estimate that, thanks to pricier oil imports, today’s report from the Commerce Department will show the February trade deficit rose to $60 billion, up from January’s $59 billion.