Warren Buffett bought both Goldman Sachs ( GS) and General Electric ( GE) last fall before the economic downturn hit fever pitch. As share prices decreased, Buffett was criticized for his timing.
Nine months after, however, Goldman's blockbuster profits have helped Buffett back into the black to the tune of $2 billion. Investors shouldn't count out GE as Buffett's next success.
Selecting a single company exposes investors to a security risk that is mitigated through the use of mutual funds and ETFs. The breadth and depth of GE's portfolio, however, help to make this single equity mutual fund-like. GE's five components are technology infrastructure, energy infrastructure, NBC Universal, consumer and industrial and capital services. The segment that is perhaps most on everyone's mind, GE Capital, accounted for 43% of the firm's profit in 2008. The economic pullback hit financial services hard and analysts have pointed to GE Capital as a potential liability for Buffett and other GE investors. After a conference call Tuesday in which GE addressed the topic of GE Capital, Morningstar ( MORN) analyst Daniel Holland noted that, "we continue to think that GE's ability to hold on to assets over a longer period will help it to limit losses within this portfolio as the company can avoid selling assets in a bad market." GE's low cost of capital has been an advantage for the firm, a point that Buffett underscored when discussing the problems facing CIT Group ( CIT). Speaking with Fox Business News earlier this month, Buffett commented on the state of CIT, noting "the problem with CIT is that their raw material, which is money, costs them far, far, far more than their competitors. So the banks have access to money at average rates that are really very tiny now. And CIT's money cost them way more."