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General Electric Is a Bad Short-Term Trade, Good Long-Term Buy

GE's fourth-quarter report was a bag of mixed news

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In its earnings report, General Electric touted that “Record Infrastructure orders of $28.6 billion in the fourth quarter enabled GE to end the year with a backlog of $200 billion, the largest in its history.” Sounds pretty impressive, especially considering that the energy and infrastructure division already posted those impressive 19% gains in Q4.

It’s also worth noting that GE Capital provided 46% of last year’s post-tax earnings, according to General Electric CEO Jeff Immelt. The exec said the finance arm was “safe and secure and rebounding sharply” after a rather brutal impact on the company across the mortgage meltdown of 2008. Profit in the GE Capital segment jumped 58% from a year earlier to $1.62 billion — not within spitting distance of the $2.21 billion generated from the energy and infrastructure, but certainly evidence that General Electric is banking big on its financial business again.

Then, of course, there’s the chatter on Wall Street. It seems that after a lot of ugly criticism during the past few years — which was richly deserved as GE slashed its dividend by two thirds and still remains 50% off its pre-recession peak — the “smart money” is coming around to General Electric again. According to MarketWatch, 28 different analysts now have “buy” recommendations on General Electric — the most since 2008.

However, most encouraging of all for long-term investors was a recent report that internal reorganization of the business will shrink GE more than previously planned. Hopefully this move will allow Immelt and General Electric to focus on the potential of GE Capital, squeeze more profits out of energy and infrastructure and refocus health care to capitalize on demographic trends.

Those obviously are long-term missions, of course, which is why I think GE stock is fit only for long-term investors. The 3.5% dividend is a good hedge, too, for buy-and-hold portfolios.

But with so many competing factors and so much hype in the short term, traders might want to sit out GE for a while. It doesn’t seem like there is that much more upside in the immediate future after a red-hot run in December.

Jeff Reeves is the editor of Write him at editor@investorplace??.com, follow him on Twitter via @JeffReevesIP and become a fan of InvestorPlace on Facebook. Jeff Reeves holds a position in Alcoa, but no other publicly traded stocks.

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