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and,GE's problem can be summarized in one sentence: The company is burning cash. Hence, other things equal, the company -- and its stock -- should be worth less every day that passes. While that is not true of some Nasdaq darlings, the market's consistent punishment of GE shares over the past decade shows that there is some efficiency left in the U.S. stock markets.
Source:Mr. Market has been dead right on GE. To shore up its balance sheet, GE finalized the sale of its Biopharma division for $20 billion on March 31st of this year. That was probably the worst time in human history to sell a business that focuses on therapeutics -- look at a stock chart of Moderna (MRNA) , Arcturus Therapeutics (ARCT) or Gilead (GILD) if you don't believe me -- but, hey, this is GE we are talking about.
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GE Stock Dropped Again. But Here’s What Is Going Right.
The reasons (for stock collapse) are well known . Demand for air travel has been pummeled by Covid-19, which means fewer General Electric (ticker: GE ) jet engines on fewer commercial jets. What’s more, low interest rates and slower economic growth hurt the GE Capital and Power business units.
Most Wall Street analyst actually rate shares the equivalent of Buy, so they must see something in the stock. Here are a few positives about the company, and the stock, for investors to consider.
Larry Culp: ...well respected on Wall Street. Investors don’t have to worry about leadership while they worry about everything else.
The Balance Sheet: “GE’s industrial balance sheet is currently in a net cash position.” GE has done a lot of work on its balance sheet, paying down debt and selling assets.
Aerospace: ...expects the commercial aftermarket to recover “fairly quickly” in 2021. Defense is part of the aerospace industry, too, and GE supplies engines to the military. while relatively small, the company’s defense business is still growing.
Cost Cutting: The cost-cutting started when Culp took over, and more actions are being taken to reduce the size of the aerospace business, preparing it for a smaller future.
Vaccines: A vaccine or cure would solve a lot of problems for humanity, as well as the ones experienced by the commercial aviation industry.
Risk and Reward
Any stock, GE included, is ultimately about balancing risk and reward. The negatives, right now, are apparent, while the positives are less obvious. That is one reason GE stock is stuck. The question for investors now is how will the balance shift in coming months.
FWIW saying I recently put on a speculative long-term GE options trade as described in the BSW thread for May. At this price, it's worth a gamble with some fun money I think.
If you check the ownership tab at M* it appears to be popular with a number of other funds at TRowe, as well as Fidelity, LongLeaf, and Hotchkiss & Wiley. You can also check out who has bailed completely.
I believe they were the last LTC provider to sell policies that you could completely pay for over a fixed number of years. More costly up front to do this, but it protected you from large premium increases once paid off. As carew388 noted, the industry was discovering that it had mispriced policies, so all insurers were implementing massive premium hikes.
GE spun off Genworth in 2004. However, it was stuck with reinsurance liabilities of at least $15B. Today it still owns legacy reinsurance companies carrying these liabilities.
The partial divestiture of GE Capital that I'm more familiar with came after the GFC. As part of Dodd Frank, the Financial Stability Oversight Council designated AIG, Prudential, MetLife, and GE Capital systemically important financial institutions. Like TBTF banks, that meant more regulation.
"In April 2015, GE announced that it intended to sell most of GE Capital over the next 18 months to 24 months in an effort, in part, to no longer be designated as systemically important."
https://fas.org/sgp/crs/misc/R42150.pdf
People surely know of Synchrony Bank, formerly GE Capital Retail Bank, and Marcus (Goldman Sachs) Bank, formerly GE Capital Bank. These were some of the institutions that GE Capital sold off. What's left of GE Capital is still owned by GE. It just ain't what it used to be.
I actually bought GE as a trade because of Giroux in 2019 and made money but so far he is wrong.
A true story, in 2000 I had the pleasure to work with two retired gents from GE and Lucent. The first guy had 6000 shares of GE at 60 each worth $360K and the second guy had $300K in Lucent and that was most of their money. The market was going down in the next 2-3 years and both refused to sell any share. I was begging them to sell. The first guy lost 2/3 of his money, the second guy lost everything. Along the way, each had many reasons not to sell.
This is why they say keep your winners and sell your losers.
Thanks FD1000 . IF Mr. Market keeps it's pedal to the metal ,off to a great start this morning, I may shed a couple of losers.
Stay Safe, Derf
As an investor in their fund, my questioning their decisions is more about me attempting to understand their decision making (and their strategy). This helps me stay the course, especially during the downside of a market cycle.
Index funds have a different criteria for decision making than managed funds. A stock such as GE may seem, to a fund manager like Giroux, a great candidate for inclusion in his fund. The index (and the rules that govern the S&P 500 Index) may decide to exclude it based on it's inclusion / exclusion rules. This lead to two very different outcomes for the fund manager's fund. The managed fund either out performs the Index (if they were right) and under performs the index (if they were wrong).
I stopped trusting Berkowitz's decision making and sold out of FAIRX, but I first thoughtfully tried to question his decision making. I attempt to do this with all the managed funds I own because they all come with fund manager risk.
By the way, Bruce Berkowitz still has a few small pieces of real estate for sale:
/manhattan-townhouse-near-central-park-hits-market-at-23-million
I don't gamble in Vegas ... if I'm going to speculate/gamble/"roll the dice" at times using 'fun' money, I'll do it in the stock markets. Sometimes I have better luck that way, too.