Spotting the Turn at GE

(Peter Garcia contributed to this article.)

It's easy to hate GE (GE - commentary - Cramer's Take) these days. Growth has sharply decelerated, the company's financial arm proved unexpectedly vulnerable to the credit crisis, management appears to lack a game plan, and the company still has more than $500 billion in debt outstanding.

But this is precisely the time to step up and look past the headwinds. Longer term, there is no reason this erstwhile titan can't regain its footing. And shares have never been cheaper. As the accompanying chart shows, the forward earnings multiple has fallen more than 30% over the last five years, and now sits below 14 for the first time in several decades.

Forward P/E Trend

Click here for larger image.

Source: Company reports; TheStreet.com estimates

Looked at another way, shares traded for the same price five years ago. At that time, the company earned $1.40 a share. Earnings could well exceed $2.20 this year.

GE became a cheap stock due to seemingly poor execution and a lack of vision from the corner office. With sales growth set to fall to about 6% this year, many have concluded that the company is stumbling badly. After all, this is a company that used to be known for consistently perfect execution.

A Deeper Look

If you dig past the current headwinds, though, you can start to see where GE is going and how it will get there. Simply put, GE has built four or five outstanding business segments, all of which hold their own in downturns, and flourish in upturns.

Take GE's financing businesses as an example. The company has had to take a hit on some consumer and real estate exposure, but not nearly to the extent that rivals have. The commercial finance segment saw a 20% drop in first-quarter profits, but that was still a $1.2 billion profit nonetheless.

And with firms such as Citigroup (C - commentary - Cramer's Take), CIT Group (CIT - commentary - Cramer's Take) and Merrill Lynch (MER - commentary - Cramer's Take) scrambling to stay liquid, GE is positioned to become the banker of choice for many new clients that need more stable relationships.

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David Sterman has been an equity analyst and financial journalist for 15 years, most recently serving as Director of Research at Jesup & Lamont Securities.