GE is Well Positioned for the Global Recovery

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General Electric

General Electric (NYSE:GE) has very often been regarded as a bellwether for American industrial and transportation because of its size and presence in various segments of these industries. This belief has been further strengthened by the correlation between its stock and GDP growth for the U.S. economy. GE’s stock had acted as a good leading indicator of the financial crisis of 2008 and had traded between $10 and $20 since its market low of March, 2009. However, GE has a huge presence in emerging markets and is earning in excess of 60% of its revenues from outside the U.S. As a result, we expect that over time it will start to reflect the growth of global economy rather than just the U.S.  So how will the emerging trends in the global economy impact GE ?

See our full analysis of the General Electric stock here

Global Economic Recovery

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This is probably the most positive sign for GE. As the global economy will recover,  its total consumption will increase translating into huge potential gains for the company. The demand for commercial aviation and energy will increase, thus helping GE’s technological infrastructure businesses. As the job scenario in U.S. improves, it’s home and business solutions division will also show improving sales growth. Most importantly, the overall U.S. outlook due to this development will improve and it is crucial considering that GE’s biggest single source of revenue is still the U.S.

A Slowing Chinese Economy

The effect on GE will be modest as the Chinese economy will continue to grow at a healthy pace. The company’s backlog in this region is strong enough to see it through slower growth. We expect new orders will keep flowing and the company will continue to do well in the region. The demand for energy, oil & gas, infrastructure and mining equipment which has been fueled by the need for energy by Chinese economy will still continue to grow at a healthy pace.

Growth of Emerging Markets

This is expected to become the biggest source of growth for GE in the future. The company is focusing intensely on the smaller markets of South East Asia and Africa that are expected to show a rapid growth in their economies in the near future.

It has also chalked out a strategy which looks at the South East Asian region with Thailand as its hub. The company has seen this strategy pay dividends as a result and recorded 30% sales growth in Thailand this past year. This trend is expected to continue well in the future as well. One example is the the commercial aviation business that is expected to grow at a very rapid pace in these countries.

Sovereign Debt Crisis in Europe

This is a major source of concern for GE and will have a sizable negative impact on the company. Demand in Europe has been soft for a number of quarters now and has more or less negated the gains the company expects from the economic recovery in Western Europe. The sectors that have been particularly hard hit are healthcare and aviation. The company is reducing its capacity in these sectors to address this decline.

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