What the General Electric Downgrade Means for Mutual Fund Investors (GE)

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What the General Electric Downgrade Means for Mutual Fund Investors (GE)

Shauna O'Brien Jan 06, 2015

Deutsche Bank lowered its rating on General Electric before the opening bell on Tuesday. Here’s what the move means for mutual fund investors.

Inside the Analyst Move

Deutsche Bank has downgraded General Electric from “Buy” to “Hold.” The firm has also lowered its price target to $28 from $30 (suggesting a 14% increase).

According to analyst John G. Inch: "In our opinion, GE is on the right strategic track to create long-term shareholder value by continuing to focus on structural and operating cost reduction, shrinking GE Capital and improving overall efficiency. However, the merits of GE’s simplification and restructuring actions appear to be proportionately offsetting Capital downsizing and still challenged global power generation markets. Moreover, we now expect earnings headwinds from Capital to be greater than we previously modeled, while the collapse in energy prices seems likely to provide an incremental challenge to GE – both directly and indirectly.

“We believe that GE’s large and diversified portfolio, including a heavy portion of profits derived from contractual services and parts, provides for a greater defensive positioning compared with most multi-industry names. However, we believe GE’s size also restricts the company’s long-term relative growth rates given the higher revenue base from which to expand. While this challenge could be overcome by shrinking the (Industrial) base, this prospect seems doubtful in the foreseeable future.”

Bulky Conglomerate That Has Lost Its Old Magic

Although General Electric was once a growing company that investors flocked to, it is no longer the bellwether that it was before. The company is comprised of several business segments, but many of them have had trouble growing. Despite its lack of growth, the stock has an attractive dividend yield of 3.75% and is a favorite among conservative dividend investors.

Mutual Funds to Watch

Investors considering a stake in GE may be interested in the funds listed below. These funds currently hold the largest stakes in the company.

The Bottom Line

The funds above offer investors exposure to a diverse group of securities and industries. Investors interested in GE may also be interested in Caterpillar (CAT) or United Technologies (UTX).

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