Some stocks that rewarded your grandparents can reward you, too. Consider General Electric (NYSE: GE), founded in 1892 and now valued near $250 billion.
GE has adapted to a changing world over time. Once known mostly for light bulbs and appliances, its operations now include oil and gas businesses; jet, locomotive and diesel engines; health care equipment; and financial services – among other things. It’s even involved in wind power and solar energy.
The company is slimming down its bloated financial business and returning to its roots as an energy infrastructure leader, with its aviation and oil and gas divisions being among its fastest growing.
GE is poised to benefit from a recovering world economy. In its last quarter, it noted that orders were up 20 percent in the U.S., and that the company’s overall order backlog hit a record level of $223 billion. That represents several years’ worth of work – and future earnings – already booked.
The company is not immune to trouble. GE’s dividend was slashed by two-thirds in 2009 during the credit crisis, but it has nearly doubled since then, and recently yielded 3 percent.
Between dividends and stock buybacks, GE is on track to return $18 billion to shareholders this year. And it’s sitting on more than $132 billion in cash. Does it merit a spot in your portfolio?
Ask the Fool
Q: What’s the difference between “growth stocks” and “value stocks,” and which is better to invest in? – H.W., Auburn, Ala.
A: The terms “growth” and “value” are often broadly applied, and can sometimes even describe the same investment. After all, an ideal stock would probably be tied to a company increasing sales and earnings briskly (that’s growth), and also be priced significantly below what it’s really worth (that’s value). You can do well by seeking both value and growth when investing.
Q: How should I set up and use a stock watch list? – P.R., Bristol, Ind.
A: As you read or hear about companies, take note of the ones you think you might like to invest in. You can maintain a watch list on paper, but it’s much easier to do so online.
Sites such as Yahoo! Finance and AOL let you set up online portfolios, where you can easily track your “holdings” from week to week or month to month. Perhaps you could pretend that you bought one share of each stock at the price at which you first noticed the company. (That way you’ll be able to see quickly how much it’s risen or fallen since then.)
Meanwhile, research the companies on your list and get to know them well. When you’re ready to buy, you’ll be familiar with a bunch of firms and will be able to compare them to see which ones are the most promising. You’ll also be more likely to notice when companies you like encounter temporary problems and fall significantly in price. In such cases, do some digging, and as long as the problems seem temporary and not fatal, these can be attractive buying opportunities.
My dumbest investment
Another reader has lamented that he sold his Apple shares too soon. Well, my biggest investing mistake has been not selling, and letting my money ride on various stocks, including Apple.
I watched Apple shares rise to $700 and was delighted. Did I take out at least my original investment? No. As it later fell, dipping below $400, I trusted it would go up again, as I’m a long-term investor. I’ve held Apple for more than 15 years. I did finally sell 12 shares. It was an exercise in picking fruit at harvest time rather than letting it rot or having someone else pick the fruit. – A.B., online
The Fool responds: Patience serves long-term investors well. Apple stock is indeed down over the past year and has gone through some long rough patches, but it has averaged more than 17 percent growth annually over the past 25 years.
As long as you’re confident in a company’s long-term prospects, hanging on through downturns can be smart. Stocks don’t move in a straight line. If you bought Apple 15 years ago, you’ve done quite well!