As the Dow Jones Industrial Average continues to reach for new highs despite persistent uncertainty in the U.S. economy, smart investors should look to companies that have provided dependable performance over a long period of time.
In my Feb. 14 column on General Electric ( GE), I pointed out a Barron's survey that acknowledges the company's dependable reputation, labeling GE the "World's Most Respected Company." At that time, I discussed buying 10 deep-in-the-money (DITM) calls in GE, in particular the September 30s (GEIF), at $6.30 or better. Today I would like to revisit that selection and place a limit order to buy 10 DITM calls at $5.50 or better. This will bring my average price to $5.90 for 20 DITM calls, and it gives me control of 2,000 shares of GE for only 45 cents to 50 cents in premium. Upon averaging down, I will adjust my GTC sell price to $6.90 in order to lock in a $2,000 win when it becomes available. GE, which closed at $34.80 on Monday, is a great play for a market that is a little scary, and this second purchase gives me control of $69,600 worth of GE stock for $11,800. Despite reporting strong earnings, the stock has not shared in the Dow's recent surge. For the first quarter, GE reported better-than-expected earnings, driven by strong foreign demand for infrastructure products. Earnings for the quarter came in 5.7% over a year earlier, and strong foreign demand helped GE Infrastructure increase its profitability by 28% on the quarter. CEO Jeff Immelt said the infrastructure business is "in the very early phase of... a long-term secular time period where we have high visibility, broad technologies, great global positioning, increasing margins and backlog on equipment and long-term service agreements that can span over the next 10 or 15 years." This bodes well for future earnings at GE and should boost shareholder value. Because of the uncertainty in the stock market, I strongly believe that investors need to seek companies with diversified businesses and a strong international presence. The growth in GE Infrastructure coming from abroad indicates that GE is in an excellent position to succeed, regardless of whether domestic GDP growth continues.
Game of Life
Gambling. We've all been at that poker table going all in, hoping for that flush draw. Passing by the slot machines, we slip in a dollar, thinking, "What do we have to lose?" Why not sit down for a hand of blackjack? One hand turns into 10 as we let the money burn a hole in our pockets. Now, with the growth of online gambling, we can lose the dough in the comfort of our own homes. How convenient!