The Ignorant Investor

Got to be quick here. GE is a huge conglomerate with its fingers in a lot of pies. I'd figure as GE goes, so goes the economy. The analysts' consensus is buy, outperform, strong buy, etc. The yield is at 3%. Balance sheet solid. Sounds good, right? Better than a lot of other companies out there. But right now the Street is down on the company. The share price has dropped 7% this year even as the DOW broke 11,000. I'm wondering why.

I guess it must have something to do with valuations. The trailing p/e ratio is running around 21, which is substantially higher than the market average. Arguably, this is a holdover from the Jack Welch days and the late 1990s when GE commanded a huge premium over other big cap stocks. Jack's gone now, obviously. As is the optimism of the 1990s. So GE may still be finding its new place in the market. Going from a star athlete to a solid, journeyman player means a drop in the salary, if you get my drift.

Now here's the bind: I'm sitting on top of a lot of GE stock. Do I sell now while the valuation is high and before any further losses? Or will the stock stabilize at 19-20x earnings- i.e., at a small premium to the market? Or is it going to be ruthlessly punished like former market-leader Intel by the trader crowd, leaving it prostrate in the Wall Street gutter with with its pants around its ankles and a deep sense of shame? These are all questions I need to answer.

I know the trader's response: sell now cause momentum is down and buy back in when it's a better value. Problem is, I've got to pay 15% taxes when I sell, and a 1-2% brokerage commission (I know, I know- I should be in a discount house, but I'm not). The buy and hold crowd would say that transaction costs can't be ignored and that this is just a small bump in the long term road.

Don't know who to believe, but I've got to make a decision soon....