Despite its troubles, GE is still a major player in US technology and manufacturing and, along with companies like Boeing, an important part of American industry. The question for investors is if they can pull things together, make a profit, and come back. Additionally, will they be helped by a bailout as America seeks to keep its technological jewels during these trying times? So, is now the time to invest in GE?

Is Now the Time to Invest in GE?

The Motley Fool raises the same questions in their article, Is General Electric Stock a Buy?

It would be easy to say that the best days of what was once one of the largest and most revered American corporations, General Electric (NYSE:GE), are behind it. After an abysmal last decade versus the S&P 500, it would be hard to argue otherwise.

More important than reminiscing about what GE once was is the question of where GE is going. The company’s cathartic 2018 included the near-eradication of its dividend from $0.24 per share per quarter in 2017 down to just $0.01 per share per quarter, a new CEO, and its removal from the Dow Jones Industrial Average, snapping a 100-year tenure.

That’s about as rock-bottom as you can get. Now, in 2020, it’s time to determine if GE has had its wakeup call, or if there’s more pain ahead.

Their analysis includes the fact that GE has cut its dividend to almost zero and divested itself of unprofitable divisions. More importantly, GE is an industry leader in many areas.

GE is a global leader in industrial manufacturing and technology, most notably in gas and steam turbines for power generation, hardware, software, and platforms for wind turbines in its renewables division, healthcare technologies for hospitals, and jet engines for its aviation division.

Considering its central position in many aspects of American technology and industry, GE may be one of the top companies to be considered for a bailout along with the likes of Boeing.

An aspect of this not mentioned in the analysis by The Motley Fool is that many companies will be badly hurt by a prolonged recession even after the pandemic recedes. Companies like GE that have a strong technological base in several high cost of entry businesses will be best positioned to prosper during an eventual recovery.

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The ISM Manufacturing Index

The ISM index is a monthly product of the Institute for Supply Management. The institute was founded in 1915 and is the world’s first such organization. The focus of the ISM is supply management, the “identification, acquisition, access, positioning, and management of resources and related capabilities the organization needs or potentially needs in the attainment of its strategic objectives.” (ISM) The ISM manufacturing index is used by many as an economic indicator as the ordering of materials typically precedes the sale of manufactured products and profits. Want to make money by investing? Follow the ISM to good insights into which economic sectors are on the rise or ready to fall.

The ISM follows these aspects of supply management:

• Purchasing/procurement
• Strategic sourcing
• Logistics
• Quality
• Inventory control
• Materials management
• Warehousing
• Transportation/traffic/shipping
• Disposition/investment recovery
• Distribution
• Receiving
• Packaging
• Product/service development
• Manufacturing supervision

The Unexpected Recovery of United States Manufacturing

The reasons we are thinking that one may want to invest in manufacturing stocks are two. The ISM report indicates that US manufacturing is getting back on track after a brief lull. And, the economic boost from Federal Reserve bond purchases will drive down interest rates. Low interest rates commonly go with economic expansion as companies take advantage of low rates to make repairs, expand, increase R&D, and hire more workers. The ISM manufacturing index went up to 51.5 in the last reported month (September). Any number above 42.5 is considered an indication of expansion. Analysts had expected an improvement but not anything this good.

Who Are We Talking About?

When we suggest that you might want to invest in manufacturing stocks who do we mean? Boeing, General Electric, General Motors, United Technologies Corp, Honeywell International, and Caterpillar are just a handful of United States manufacturers. Each company has its niche and its story. General Motors, GM, has just emerged from bankruptcy. Invest in Boeing? Boeing, BA, is rolling out the new state of the art 787 Dreamliner at $200 a crack. Caterpillar, CAT, supports construction projects in the USA and across the world. United Technologies Corp, UTX, provides high tech products for building systems and aerospace. Honeywell, HON, provides diversified products and solutions to customers worldwide. And, General Electric, GE, products and services include aircraft engines, power generation, water processing, household appliances and medical imaging. If you want to invest in manufacturing stocks as the sector recovers the above stocks may well be good places to start.

Where to Invest

If you are going to invest in manufacturing stocks based on the most recent ISM report, remember that the just-released ISM index has to do with US manufacturing and not manufacturing in Japan, China, Taiwan, or Germany. For US manufacturing indices of export growth and placement of new orders were both heartening. Employment in the manufacturing sector also rose. ISM numbers elsewhere were worse. Manufacturing indices in the UK as well as China both fell in September.

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How can you decide about your investment?

If you are in a financial crisis, you must be facing multiple problems. On one hand you must be losing your mind as your portfolios are going down the drains, on the other hand you must be quite desperate to replenish your funds that are diminishing. However, you should keep in mind that since you are already facing trouble with your mortgage, you cannot afford to experiment in a volatile environment. Hence if the market is unsteady it is better that you go for a long term investment, say up to a period of 5 years where the chance of making money will increase. Short term investments are designed in such a way that they will show a significant yield within a short span of time. Long term investments, on the other hand, would last for a number of years but show a steady increase so that the yield at the end of the term becomes quite significant.

What are the advantages and disadvantages of short term investment?

The biggest advantage of a short term investment is that it gives a fast growth. With a term ranging from a few weeks to a few months, short term investment can give you almost ready cash. Even though short term loans tend to fluctuate quite a lot, it will allow you to have more control over your money since it is not out of your possession for a long period of time. Along with the above advantages, there are several disadvantages too. Usually short term investments tend to be quite risky and show heavy fluctuations when compared to their long term counterparts. There is chance that you will lose money in short term investment as much as there is chance to make money. This is more applicable when you are dealing with stock market as most of the short term investments made with stocks and bonds involve precise timings in order to sell stocks or bonds at their peak value before they start falling.

What are the advantages and disadvantages of long term investment?

These are the opposite of short term investments and they possess the ability to gain small amounts of money steadily over a longer period of time. The pace of the long term investments facilitate a greater degree of stability and much lower risks as compared to short term investments. These are also ideal for making your retirement savings by investing in funds. These investments keep growing over the years and mature when you need them. there isn’t much prevalent disadvantage of long term loan apart from the fact that their growth is slow over the years.

Thus it can be said that, if you want a high yield in a short span of time, long term investments are not your thing. In fact, sometimes long term investments can decrease in value before they rise if you consider the fees that are associated and the small fluctuations that are bound to occur. However, with short term investment it might not always pay off and you may not even get the little money that you can from long term investment. Thus it is your call whether you choose risk over stability.

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