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Tickers in this Article: GE, TXT, MMM, DIS, CIT, VIA, JPM, UTX
Last week industrial and financial giant General Electric (NYSE:GE) issued its second profit warning so far this year, citing historically volatile financial conditions. The warning was hardly a surprise given the conglomerate's sizable financial segment and the tendency of any business associated with the term "financial" to sink like a stone in this market.

What is surprising is that GE also said it will suspend its share buyback program and hold its dividend payment steady after 32 straight years of increases. But despite the near-term uncertainty, the shares look pretty tempting at current levels, especially considering the recent capital raising move and fact that Warren Buffett confirmed an investment yesterday evening.

Core Business Strong
The good news is GE isn't seeing any major issues in its industrial operations, which operate on a global scale and are primarily involved in the infrastructure, aviation and healthcare industries. Competitors include Textron (NYSE:TXT), 3M (NYSE:MMM), and United Technologies (NYSE:UTX). GE also runs NBC Universal, competing against the likes of Viacom (NYSE:VIA) and Disney (NYSE:DIS) in the media and entertainment industries. These businesses collectively accounted for two-thirds of last year's sales, made up more than half of profits and are leaders in their respective industries.

The 'Financial' Impact

Running the math demonstrates that the financial services businesses, which include commercial finance and the GE Money credit card division, punch above their weight in terms of bottom-line impact by accounting for only one-third of sales but about 45% of last year's profit. That's not a good thing given the credit debacle as firms are collectively deleveraging their balance sheets with very few counterparties willing to take on debt these days. As a result, GE must focus on maintaining sufficient liquidity in these operations to secure its stellar AAA credit rating.

The finance units are only expected to make up 40% of profit this year and the dividend amount paid back to the parent company will drop significantly as they retain capital to pay down debt and reduce the need to relay on undependable outside liquidity. That works out to about 80 cents of the $1.95-$2.10 GE expects to report in full-year earnings.

Valuation Reasonable
Given that the current share price is hovering near its 52-week lows below $25, that puts GE at a reasonable forward earnings multiple of about 12.5. To put that in a historical context, GE has traded at about 15 times earnings, making the current multiple look quite reasonable.

In a recent email discussion with Barron's writer Michael Santoli mentioned to me that the past multiple is inflated due to the stratospheric multiples many blue chips were trading at during the dotcom bubble, which is definitely worth noting. Overall, the stock still looks appealing when taking into account the favorable valuation, ample cash flow GE will generate, leadership positions held in most of its divisions and upside that exists when financial conditions move to more normal levels. (To learn more, read The Essentials Of Cash Flow.)

Industrial Business Provides Security
There is, of course, the risk that credit remains tight or the ability for firms to fund their businesses grows even more difficult. Yesterday's events served as a clear indication that risk is high - GE announced it is issuing $12 billion in stock to shore up its balance sheet and also solicited the halo-effect of Warren Buffett, who agreed to buy a slug of preferred stock to garner very attractive interest rates and receive warrants to buy additional shares at a favorable $22.25 per share.

Yet despite the uncertainty, GE remains particularly appealing given investors are somewhat hedged as the traditional industrial businesses outweighs the financial arm in terms of sales and earnings, meaning they will shoulder less risk than jumping headlong into a financial services giant such as JPMorgan Chase (NYSE:JPM) or embattled peer such as CIT Group (NYSE:CIT).

Bottom Line
The industrial businesses will also likely slow as global economic growth prospects grow more challenging, but on balance GE appears to be weathering the difficult conditions quite well. And based on current guidance, it will remain solidly profitable throughout. For instance, GE Finance is still expected to report $9 billion in earnings this year, leaving shareholders plenty to bank on as they ride out the current bust in the economic cycle. As Warren Buffett mentioned, GE will remain one of the bluest of blue chip stocks and be around for many years to come.

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