GE has a "hold" rating from TheStreet.com ratings. Our model downgraded GE while it was still above $30, avoiding the slide to $6 earlier this month.
During the longest recession since the Great Depression, GE has increased revenue, and its gross margin has only narrowed four percentage points. When the financial system seemed to be on the brink of collapse, General Electric produced a return on equity of 15.7% at the end of 2008, 3.75 percntage points less than a year earlier.
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As the economy rebounds in the coming months, GE will capitalize on demand for equipment, and its financing unit will be more than able to provide cash-strapped customers with the means necessary to buy this gear.
The movement from "AAA" to "AA" is hardly cause for alarm. While the increased risk is going to raise financing costs and hold back the stock price, there is nothing to suggest GE could cease to exist anytime soon. At its current price of about $10 and with a dividend yield of more than 11% last year, investing in GE doesn't entail a lot of risk for most long-term investors. Even with the recent dividend cut to 4%, the yield is still attractive, given the current rates on "risk-free" securities such as Treasury bills.
Editor's note: In response to the turbulent economy, TheStreet.com Ratings has introduced "Is It Safe?", a series that analyzes the risks of stocks, funds, commodities and other potential investments.
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