GE stock: It's cheap, but it's also a bit risky

— -- A: General Electric is one of those stocks many investors assume you can just buy and forget.

GE, which makes everything from aircraft engines to financial products, is consistently one of the most widely watched stocks by USA TODAY readers. You can find out which stocks readers own or are watching in their USATODAY.com portfolios by going to: readerschoice.usatoday.com. GE has been the No. 1 stock for a long while.

But GE hasn't been such an easy stock to hold during this bear market. Instead of being a source of stability during the financial crisis, it's been punished by investors. Shares of GE are down more than 70% from their 2007 high.

Nevertheless, Warren Buffettinvested in GE last year, when the stock was trading around $24.50 per common share. It's now less than half that.

Does GE's downdraft mean you should be thinking about scooping up shares of the diversified giant?

To find out, I'll put GE's stock through the four tests considered at Ask Matt:

Step 1: Risk vs. reward. When you take a risk on a stock, you want to make sure you're properly rewarded. Downloading GE's trading history back to 1962, we see the company generated an average annual compound rate of price appreciation of 9.3%. Add in the current dividend yield of 3.5%, and that gets you to an estimated future return of 12.8%. This is better than average; the S&P 500 posted an 8.9% average annual return in the same time frame, says IFA.com.

But here's the rub. If you owned GE, you accepted higher risk — standard deviation — of 26 percentage points. That's nearly double the 15.1 percentage point risk of the S&P 500 during the period. So to get a 44% higher return you accepted 72% higher risk. Not a great tradeoff, since you're not getting a large enough return to justify the higher risk you're taking.