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Wednesday, March 12, 2008

GE: General Electric's CEO Immelt Invests Another $5 Million Of His Own Money In GE Stock

Following insider buying can be a great way to make money even in a falling market. Major insider buying at General Electric (GE) could yield similar gains to patient investors as we have seen with Valence Technology (VLNC).

Yesterday number one insider at General Electric, chief executive officer Jeffrey Immelt, bought 62,000 more shares of GE stock worth $2.04 million at an average price per share of $32.93 according to SEC filings. Immelt told investors that GE should outperform the Standard & Poor's 500 index this year in a "challenging'' environment.

In an annual letter to shareholders released today, Immelt wrote:

  • "You could try to pick the perfect investment for this environment, but it would be a challenge."
  • " Maybe it is in technology, or emerging markets, or commodities, or Treasury bills. Or you could pick GE."

At $34.00, GE has a market cap of $340 billion with a dividend yield of 3.90%. Ten year US Treasury bonds only yield 3.56%.

On why GE won't sell NBC:

  • "We are in a good cycle, with momentum around the Beijing Olympics, the U.S. elections, and the 2009 Super Bowl," Immelt said. "NBCU benefits from GE's global footprint, financial strength, and human resource skills."

NBC profits were up 6 percent in 2007 on 5 percent lower revenue of $15.4 billion.

Immelt's $2 million investment in his companies stock follows a February 29 purchase of 90,000 shares at an average price of $33.42 worth $3.01 million.

Here is a 5-year summary of insider trading by Jeffrey Immelt and a graph.


Insiders usually sell stock as their stock options vest then expire. Exercising stock options reduces shareholder equity to reward insiders for good work, or so the theory goes. They would be foolish to not take advantage of this shareholder generosity so tracking insider selling is not as useful as tracking insider buying.

When insiders use a significant amount of their own money to significantly increase their holdings in the company they work at, then we should pay attention. Valence Technology is a stock with significant insider buying that has recently doubled. This chart of VLNC insider buying is from the Feb. 22, 2008 article "CSCO: Open Letter to Cisco's Board of Directors."


Valence is one of many technology stocks that have been in a prolonged bear market decline after peaking in early 2004. That didn't stop insiders from buying and now they are being rewarded.

I believe GE will eventually offer similar rewards for patient investors.

GE is a great international play as more than half its sales come from outside the US with about $40 billion of the $195 billion total coming from emerging markets.

In the 1976 movie "All the President's Men" on how to uncover the details of the Watergate scandal, Deep Throat told reporter Bob Woodward "I'll keep you in the right direction if I can, but that's all. Just... follow the money."

Discuss this article and GE in general at our facebook "Investing for the Long Term" forum called GE: General Electric "We Bring Good Things to Life"

Disclaimers:

  1. I own GE in my personal account with a 13% profit considering reinvested dividends. I have also hold GE in my newsletter explore portfolio with similar gains.
  2. I own VLNC in my personal and newsletter explore portfolio with gains in excess of 100%. I have taken some profits and have targets to take more profits should it go higher.

Kirk Lindstrom's Investment Letter Performance

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