Tag Archives: General
To call 2018 a bad year for shareholders of General Electric (GE) would be a grave understatement. Throughout the year, the company has undergone expanded investigations by the government, shuffled top management, sold off various assets, and, on multiple occasions, revise down performance expectations before ultimately eliminating them for the foreseeable future. By practically all accounts, the industrial conglomerate has been hit harder, and in almost every way possible, more than it has ever been hit before in its more than 100-year history. Now, as 2019 approaches, the big question facing shareholders is “what’s next?” While it’s possible 2019 will bring with it even more pain than 2018 has, the more likely scenario is that the firm will use the New Year to restructure its operations (out of bankruptcy) and will, if all appropriate steps are taken, prepare for a turnaround that could bring to shareholders significant value.
Expect the breakup to occur
One thing that very few people will disagree with, I think, is that a breakup of General Electric must occur. The business has become so large that it is, from a management and capital allocation perspective, inefficient. When you have so many divisions, figuring out where and how to deploy limited capital can be hard, while as separate entities, the fact of the matter is that individual management teams can focus on their core operations. By breaking up, the firm will also, for the most part, rid itself of GE Capital, which is likely where any currently undisclosed problems probably reside.
As management indicated while John Flannery was still General Electric’s top dog, I fully expect the company to divest of itself its GE Healthcare segment in some way, shape, or form. Management has indicated that this will take place through an IPO, but it’s expected that shareholders might still retain some of the business, though all of this could change over time. We already know thanks to an announcement earlier this year that the firm is likely to continue winding down its ownership in Baker Hughes, a GE Company (BHGE), by selling off its stake in the firm, but a big question here might relate to timing. Since the end of September, shares of the oilfield services firm have plummeted 34.6%, so while the company has struck a deal for a sale of some of its stock, I suspect that additional sales will only happen following a recovery in unit price.
Following the spinoff of its Transportation segment into a commanding interest in Westinghouse Air Brake Technologies Corporation (WAB), also known as Wabtec, next year, I believe management will likely begin monetizing its interests there as well. Personally, I see monetizing both Wabtec and Baker Hughes further as a sizable mistake given the future outlook I have for both energy and transportation in the US, but the cash generated from these deals will allow management to reduce debt and/or to invest further into what operations are left.
One thing I would love to see transpire is the sale or spinning off of General Electric’s Power segment. At this time, the firm intends to separate that into two different sets of operations, which may be setting the stage to sell or spin off at least one of them. I see this new decision under CEO Culp as a sign that he understands Power is General Electric’s most significant problem at the moment, and since plans to retain power occurred while Flannery was still in charge, I have modest hope that management will divest of the segment or at least part of it.
Don’t expect a distribution hike
During its third quarter earnings release earlier this year, management made a significant change to General Electric’s dividend policy. They said that, effective this month, the company would only pay out $ 0.01 per share each quarter as a distribution, down from $ 0.12 per quarter previously. This decision, though controversial, will result in the firm’s annual distribution falling from $ 4.175 billion per year to just $ 347.925 million per year. While I would have loved to see it cut all the way to zero so that management would have even more cash to put toward debt reduction and investing in core assets, the savings seen are material regardless.
Investors hoping for the distribution to recover in the near future are, I think, engaging in wishful thinking. As of the end of its latest quarter, General Electric had cash, cash equivalents, restricted cash, and marketable securities worth $ 61.69 billion, which is a lot to work with, but it also had $ 114.97 billion worth of debt (inclusive of $ 2.70 billion of non-recourse debt). Admittedly, debt was down from the $ 134.59 billion the firm had at the end of its 2016 fiscal year, but as assets come off the books, debt also must be reduced. Some of this could be taken off by spinning off various assets (for instance, the firm could probably spin in the low tens of billions of dollars off with its Healthcare segment if it so decided), but it’s likely that a lot of the work toward reducing debt will be tied to asset sales and the cash that otherwise would have been allocated toward its quarterly dividends. Until management can reduce debt, it’s unlikely we’ll see a hike, and that probably won’t occur until, at the very best, late next year.
Where does debt need to be in order for management to consider raising its distribution again? The short answer is that it’s anybody’s guess, but more likely than not, it’s by whatever amount would allow the firm’s credit rating to rise back into the As. As you can see in the image above, the firm’s credit rating, as calculated by Moody’s (MCO), used to be Aaa until it fell in 2009. Since then, the rating has fallen further and, today, the firm’s long-term debt rating is Baa1. This still places it in a category known as “investment grade,” as the image below illustrates, but the drop, even though it’s not on watch for a further downgrade at this time, will weigh on financing options until the situation can be improved.
A lot of cost-cutting and wheeling-and-dealing
If General Electric is going to not only survive but thrive for the long haul, there’s no doubt the firm will need to cut costs. This is especially true if the company elects to keep its Power segment, but irrespective of it, certain corporate costs will need to be slashed as the firm works to spin off its assets. Although management has, in recent times, done well to push for cost cutting, when the company actually starts to break up, we will know whether, and to what extent, this is actually true. One strategy that could work quite well could be what the firm struck with Baker Hughes. As part of its share divestiture, the two companies have entered into a series of joint agreements that will keep their operations intertwined through things like guaranteed low pricing and joint buying of key assets. I suspect this kind of wheeling-and-dealing to continue as the conglomerate sells off more of itself.
Based on the data provided, it’s clear that 2018 has been awful for General Electric, but investors who are expecting more pain to follow through 2019 might be on the wrong side of the bet. If 2018 was the crash for the business, 2019 will likely be the start of a true recovery for the firm, especially if management can work to restructure the entity in the way that they should. Obviously, whether the firm is successful or not, investors should expect a tremendous amount of volatility during the process, but that could present opportunities to buy and sell at attractive prices for the emotionally-detached investor.
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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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So far, the word “unpredictable” seems to be one of the most-used descriptive choices when characterizing the events of 2018. And, broadly speaking, this appears to be an accurate term. Just a few months ago, if you were to suggest that the NASDAQ would be seeing “flash crash” activity while General Electric (NYSE:GE) was forming a long-term bottom in a multi-year decline, you might have been laughed out of the room. But this appears to be where we are, given the market’s positive reaction to GE’s April 20th announcements and the generalized lack of certainty in almost every aspect of this current financial environment. We have been saying that the stock declines below $ 13 per share would be the worst of it for holders of GE and we maintain this view in light of the company’s recent strategic moves. We are long GE with a bullish stance on the stock as a long-term hold for portfolio strategies.
Chart: CNN Money
Many analysts have argued that there are fundamental earnings problems within the company itself. But, since this is the most “mega” of the “mega-conglomerates” it is critical to assess the trends over at least three years before drawing any drastic conclusions. The earnings performance at GE has been erratic since 2015. But the revenue side of the equation has been much more stable over the same period.
This implies that GE’s problems are internal (fixable) rather than external (not fixable). This is good news, as long as the company is able to reduce operations and focus on the businesses. Currently, jet engines, power plants, and healthcare machines are GE’s biggest money-makers – and we would prefer to see more of the company’s attention (and resources) focused on streamlining these segments.
Earnings Trend Chart: Yahoo Finance
On the other side of the ledger, the power, oil, and gas markets are still presenting major challenges for General Electric, with revenue in those segments showing significant weakness in Q1. Operating losses in the power unit were lower by 38%, but the company has said that improvements have been made in service operation and cost execution for the segment. Operating losses in oil and gas fell by 30%. Other negatives were seen in the GE Capital unit, as it continues with its weaker trends.
For the first quarter, net losses came in at 14 cents per share (roughly in-line with last year’s performance for the period). On a continuing basis, net incomes came in at 4 cents per share (a solid increase from the in the 1 cent per share seen a year ago). On an adjusted basis, the company posted earnings of 16 cents per share (well above analyst estimates calling for 11 cents per share). Total revenues for the quarter gained by 7% (to $ 28.66 billion against expectations of $ 27.45 billion). In the accompanying statement, Flannery highlighted the fact that margins, industrial earnings, and free cash flows are all gaining on an annualized basis – and this is all good news for dividend investors.
What really matters here is the strategic direction, and the willingness within those in management to cut the fat and become a more modern company. There are still very real questions with respect to whether or not Flannery & Co. will be able to address those needs. But we do know that many of the correct moves have already been made. This includes the decisions to sell NBC, Universal Studios, and its real estate portfolio.
These were areas where the company could not reasonably hope to compete, and sacrifices needed to be made in order to preserve as much of the dividend as possible. Another example of a strategic move in the “right” direction was deal to sell GE’s appliance division for $ 5.6 billion. GE is still in recovery-mode, and this is the short-term outlook that should define the long-term outlook for quite some time.
GE Chart Analysis: Dividend-Investments.com
The key point here is that the word “recovery” implies gradual strengthening. In market terms, that equates to positive price movement, and we view GE as a long-term hold with an attractive yield offering for investors. GE cut industrial structural costs by $ 805 million, and they expect to beat prior goals to reduce costs by $ 2 billion for all of 2018. This is strong evidence of progress, and it has not yet been reflected in share prices.
Shorter-term, we have seen some upside and this is an indication that the market is liking what it sees (so far, at least). Since aviation, healthcare, and transportation divisions all experienced double-digit profit growth, these moves should be viewed as valid. Prior resistance under $ 14 should now be expected to act as price support and we believe that a long-term bottom has likely formed at $ 12.80.
What is your position on GE? We look forward to reading your comments. Stay tuned to Dividend Investors and receive our next alerts by clicking the “Follow” button at the top of the page.
Disclosure: I am/we are long GE.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
It has been one hell of a year for General Electric (GE) and its beleaguered shareholders. Bullish investors have suffered mightily watching their funds evaporate as the stock fell 65%, punishing anyone in the name.
Yesterday, the Wall Street Journal published a relatively bearish article that allowed traders to pile on to the downside with the stock breaking the $ 13 level and trading down to $ 12.70. That matched a low not seen since the heart of the financial crisis.
I read the article but did not see a real reason to spin it as a sell sign. There was no new news there. In my view, this is the type of situation that happens when a stock is capitulating and media outlets pile on, kicking a company when it is down.
As I watched GE hit $ 12.70, I thought to myself, is this company needing a loan from Warren Buffett? No.
Are we in a financial crisis with a contracting economy? NO.
Is sentiment as bad as I have ever witnessed in GE? YES. I then pushed the buy button and added to an upside down position with reservations.
Here are few questions for the average investor to keep it simple.
- Are conditions better for GE now than they were in 2009? I think the answer is yes.
- Does GE have more or less shares outstanding than 2009? It has less shares outstanding.
Here is a chart showing the share count for interested investors.
Source: GE macrotrends
As you can see, the share count was over 10B in 2009, it is now around 8.6B shares.
- Is the global market in which GE operates in recession? No, as a matter of fact, the world economy is growing in sync for the first time in over a decade.
- Is the negative news overdone? Are we dealing in reality or is the market trading on fear?
- Is there a positive catalyst that can take the stock higher? That is a little more difficult question to answer. For me, the answer is maybe.
GE has been a huge disappointment for many years. There have been hundreds of articles over the last few months about GE and all of its problems.
I would like to take a moment to focus on Price and entry points.
What is GE worth?
Today, the stock is worth $ 13.32 a share as I write this article. Yesterday, it was worth $ 13.23 to $ 12.70. I think the sell-off is way overdone, but the fear factor is real, and the margin calls are real.
My downside price target of $ 12.80 was hit yesterday. To me, it is worth $ 12.70. I bought it yesterday from $ 12.71 to $ 12.92. I may sell the rally, trading around my position and trying to get out with my scalp. I think the stock is worth around $ 15 to $ 18 a share by June 2019.
Bottom line is this: GE is a global digital business. The stock price will vary from day to day. Sometimes, it will trade at a significant discount to the business and its underlying fundamentals.
In my view, $ 12.70 represents a value that will cause the bulls to step in and stage a rally that could last into earnings.
Here is a look at a 10-year monthly chart.
In looking at the monthly chart above, one can see the sell-off in 2008 and 2009 and the 10 years that follow. Very few traders in the markets thought the stock could go down and break $ 13, but I did.
I wrote an article back in January stating more capitulation to come. In that piece, I wrote that GE could break $ 13 after hearing about the $ 22B GE Capital bombshell. I set a buy target of $ 12.80 back then and decided to stick with my unemotional thesis based on behavioral finance.
Important Note: GE only traded under $ 13 for a few short months in 2009 when the financial world was burning down and fear was everywhere. It is a very different world now, and in my view, GE is going to be fine.
Is GE a buy three months later at $ 13?
Maybe, if there is evidence of a solid sustainable turnaround and the clouds of uncertainty are raised. Right now, uncertainty is everywhere. There are far better stocks to buy that are going up, stocks with great earnings growth.
Two months ago, Kevin O’Leary said he would buy it at $ 13.
Now, Mr. wonderful just said on CNBC that he wants to buy the stock at $ 7 to $ 8. I get it. I have done the same thing many times. However, the market makes all of us look a little silly at times, and while GE may hit $ 8 a share, in my view, it is highly unlikely.
It is normal behavior to watch a stock get way oversold on highly negative sentiment and not be able to pull the trigger; only to watch it go on a quick 15% to 20% sharp rally with you on the sidelines.
This type of arrogant attitude is bullish to me as it may embolden shorts which could help the stock rally near term. He says “it can go to $ 8 easily.” I disagree. That was the height of hysteria, and the reason it went to $ 5.65 was a fake news story about BK, which was false. I bought it that day and owned it on March 9th when the market bottomed with a cost basis of $ 8.28.
It might be better to put your money into financials like Bank of America (BAC) under $ 28 or Citigroup (NYSE:C) on weakness. They are both growing earnings and raising dividends. Rising interest rates will do wonders for their bottom lines. Apple (AAPL) is a cash-generating monster with a continuing revenue stream and great margins.
The market is ignoring any positive news coming from GE at the moment
The new $ 1.3T government spending bill will likely be a huge positive for GE going forward. It stands to make some great profits on all different types of defense spending, which is totaling $ 700B. That is extremely bullish for GE and its future, but when a stock is in capitulation, many investors cannot ignore the noise.
Look at this slide from a JPM presentation showing what it makes for defense spending. The market is missing the boat with GE and its prospects for the future, in my opinion.
GE Capital is going to be a drag on earnings for years to come. The $ 22B hit that the company took on the last conference call scared the hell out of most investors, including me.
Margins are getting squeezed with profits down 88% in the power division.
GE pension problems are out of control. (I disagree).
The Alstom acquisition is a disaster, and it will never be able to make the business model work.
SEC headlines in regard to GE Capital will remain a risk to the stock.
Extreme pessimism around the stock is a contrarian play. GE has intrinsic value, but the market is not giving any value to GE as a company. Enterprise value is how much? Zero? I am not an expert, but as a long-term trader, I would give the company a minimum value of $ 5 for enterprise value, and in my view, that is conservative.
Aviation earnings should do great as worldwide jet engine growth spending ramps up over time.
Earnings report on April 20th should be terrible
I am expecting an earnings miss and more write-downs on the next call. I expect nothing good to come out of energy this fiscal year. This may be the worst quarter of the year for GE. Any positive news and clarity around GE Capital could pop the stock 10% overnight. A major earnings miss and investors could see a sell-off that takes the stock to new lows.
GE is in the dog house, although today is the biggest rally day in many years. The stock has hit a capitulation level that I believe could launch an interim rally as bulls force short covering going into earnings.
The company’s share count is over 2 Billion shares lower than 2009. The global economy is buzzing along with synchronized growth. While GE has problems, the company is slowly working through its issues.
I am not bullish on the name but believe that an interim rally point may have been reached at the $ 12.70 level. Today’s trading activity is a good sign for beaten-down shareholders suffering under years of bad management.
April 20th is the next report card for GE. Investors will be looking for clarity on GE Cap. and free cash flow growth. I see GE going nowhere fast as this year will be a reset. While I am long the stock, I will be looking to exit and hedge on rallies.
An announcement of a big-time investor like Warren Buffett could pop the stock 5% to 10% in a heartbeat. Investors will be watching closely to see who the new whale is jumping into GE.
Short squeezes are the start of many individual stock rallies, and they can happen very quickly and keep going, wringing out shorts. From there, improving fundamentals can take a stock higher.
As always, I encourage investors to do their own due diligence and make their own decisions and always have an exit strategy in place before making any trades.
Disclosure: I am/we are long GE.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
I hate loving General Electric (GE), its like an ex boyfriend/girlfriend that broke your heart.
Each time you go back, you tell yourself it will be different… they have changed! Yet every time you go back, they break your heart again.
This has now happened to me twice with GE. In 2008, I was riding high, having bought GE in the mid 20’s in 2004, with the promise of an industrial revolution. The finance division was booming and I was up a cool 50% and thought I had found the one!
Then I found out they were cheating on me with someone named subprime! It nearly bankrupted the company, and Uncle Warren had to come to the rescue to save it.
I was frankly, lucky to get out when I did, selling mid panic in the low 20’s. The end result was a 4 year investment that returned roughly negative 20%. I vowed to never make that mistake again…
In early 2015, it was as if GE sent me a text saying… “I miss you… lets get lunch to catch up?” and unfortunately for me, I hit reply. And just like that, we were back together.
The stock had been consolidating all year, and Jeff Immelt had on his shiniest used car salesmen hat, singing sweet nothings into my ear of buybacks, the disposal of the finance assets and refocusing on core industrial operations.
Blah, blah, blah! Next thing I know, this pretty little stock I re bought at 24 and had me sitting on 35% gains, gets cut in half… Apparently the company had a nasty secret spending habit they hid for years and years.
So I had a decision to make mid 2017, do I bail again and take another 20%+ loss? Is this stock destined to break my heart again and again until nothing is left?
I did some soul searching… deep in the woods. And had decided again to leave, never to return.
But as I was leaving the door, with my bags packed, and my prized, signed picture of the Jamaican bobsled team in toe, an event made me hit the pause button.
Jeff Immelt had decided to “step down.”
This left me in a holding pattern for months, until Nov 13th. When new CEO John Flannery issued 2018 guidance that was, lets be kind and just say disastrous. Lowering even the lowest of bars for 2018 to EPS of $ 1-$ 1.07.
So, why am I still a holder of GE stock?
To squeeze some more juice out of my “ex” metaphor, GE just checked itself into rehab!
It now realizes it has a serious problem, it has overspent and or had disastrous timing on virtually every major deal it has done in the last 10-15 years. Alstrom, check. Oil assets, check. Finance disposal, check. Buyback, check.
Mr Flannery appears to not need a second corporate jet to follow him around “just in case” unlike Mr Immelt. He also seems to be dead set on costs, which with GE in its current structure will keep him busy for a while.
Why not close your position?
You think I am crazy don’t you, why in the world would I consider keeping or perhaps doubling my position in a stock that has done nothing but hurt me?
The reason is pretty simple, all of the dirty laundry appears to be in the open now. No more secret spending accounts or ill researched / timed acquisitions (for now). Mr Flannery has all but told anyone that will listen that the rest of 2017 and all of 2018 will suck, and to not invest.
He didn’t “kitchen sink” an earnings report, he lit the whole house on fire.
Mr Flannery has called for a new approach to doing business at GE and more importantly to transparency, apparently not subscribing to Immelt’s pyramid scheme like approach to GE’s cash flow. He has acknowledged the pension shortfall, which I am sure will come up in the comments section of this article. Also shrinking the board from a frat house of 18 to a GE focused 12, preaching honesty (imagine that) and accountability in the new GE.
So far I am digging the new CEO and currently am in tacit agreement with his broad outline.
What was the new CEO given to work with?
I’m glad you asked! GE in my opinion has a very strong set of business’s to work with, below I have outlined the 6 major divisions it currently operates.
Power- GE’s power business is huge, with an installed base in every major country in the world. They claim to produce 1/3rd of the worlds electricity through gas, steam and nuclear turbines. This is a core division for GE, and one that recently has helped drive them directly into a ditch, as overcapacity, technical issues and in my view an ill timed Alstrom acquisition weigh on earnings at the division.
However, GE power does have many redeeming qualities. They are a technology leader in the industry whilst having deep relationships with customers in a field that honestly does not have all that many options. Near term however, look for deep cuts in expectations at the unit until the smoke clears.
Aviation- The companies Aviation segment has been a bright spot in recent results, with continued wins and new product introductions, for example LEAP, its new narrow body engine that from what I can find is truly state of the art, with a 15% fuel improvement, increased reliability, weighs 500 lbs less and is 3D printed (which, lets face it, is just cool!)
This division looks set to continue to preform well in the near term and may be looked at as an example for the rest of the company.
Transportation- The transportation segment is mostly composed of GE’s rail assets and is thought to perhaps be on the chopping block for divestiture. They build locomotives with a large portion of revenue coming from the services side of the business, which is something I like to see. They are a global leader in the industry and the mix of technology and services is impressive.
However the division has been lackluster of late and the strategic fit is questionable and thus may not make sense for them to keep. They did just win a 200 locomotive order from Canadian National Railway (CNI) but it may be prudent to offload this asset to focus on core business.
I sort of hate to see this business go, as it truly is world class. However GE hopefully will use proceeds here to either reduce debt or shore up the oft cited pension shortfall.
Healthcare- GE has a broad and diverse set of healthcare assets, providing imaging, healthcare cloud, cardiology, orthopedics and anesthesia equipment, among multiple other products and services.
This has been a strong performer for the company and what I would consider another core holding of GE, this division looks to be a good fit with its digital offerings and will likely continue to buoy the company during this current slump.
BHGE- This is a division that really makes me mad, and I struggle to remain calm in my writing. Jeff Immelts timing was so bad that it feels like it was on purpose. Immelt decided to buy a bunch of oil services companies, seemingly at the absolute top of the oil market. Grrr.
Anyways, GE Baker Hughes as it is now called is the 2nd largest oil services company in the world and to be fair is actually a very good company, and is a technology leader in the industry along side Halliburton (HAL). So basically it is the second prettiest girl in a leper colony.
Oil services, seem in my opinion to be stuck in a pretty serious long term rut and GE, I believe will look to dispose of this asset likely through a spin off off or divestiture of its stake rather quickly. Perhaps GE could offer Immelt a stake in this spin off in return for the GE stock he so graciously awarded himself during his charade.
Renewables- The renewables division is home to a world class wind energy turbine manufacturer, along with in my opinion is the most valuable part, its services segment. GE has established itself as the worlds number 2 wind turbine company behind Vestas Wind Energy (OTCPK:VWDRY). The company also has an emerging offshore wind and hydro power segment that are lacking scale currently, but hold long term promise.
The wind market this year has suffered from intense competitive pressures thus dragging results, however this also looks to be a core division for GE in the future.
So why am I sticking with GE this time – and may be looking to “pop the question” soon?
The companies potential is just so damn pretty! GE lines up well with my vision of the mega trends of the future.
In my mind, a company must both show an ability for growth, while possessing a solid balance sheet with operating discipline from which to build. Under Mr Immelt, GE, in hindsight obviously stood much closer to the crazy side of Mr Barney Stinson’s famed graph below.
Mr Flannery seems to be dead set on adjusting the results of the above graph.
After the dust settles from the recent house fire Mr Flannery has set ablaze, I am envisioning 4 major divisions of GE remaining. Power, Aviation, Healthcare & Renewables.
All 4 remaining divisions fit into my vision- with 3 qualifying in my mind as mega trends. Power, Aviation & Renewables.
Healthcare I view as a great business as well but does not fit as a mega trend in my book with so many unknowns as to the future in the industry.
Power- Power is (obviously) a key need for the future as more and more countries look to move to gas powered plants and away from coal. With the world estimated to need an additional 50% more electricity in the next 20 years, perhaps adding dramatically to that if the electric car revolution is indeed realized.
GE is in great shape position wise in the industry and once the fat has been cut, along with a renewed focus on execution, this division should prove to be a key driver of profits for decades to come.
The below graph shows an estimate of the worlds need for energy into 2035.
Source: Breaking Energy
Aviation- This division looks to be in the midst of a multi decade run, as the world continues to be more interconnected. Importantly the Asian travel market is in the early innings of what looks to be a spectacular expansion. GE I believe is in the drivers seat in this industry, both in technology and services.
My one worry is the Chinese looking to enter this market with “homegrown technology” which I believe is code for stealing IP and re packaging it. However manufacturing jet engines is an entirely different animal from copying an iPhone and progress on a Chinese engine that is both safe and accepted is likely a few decades off.
Source: Airbus Home
Healthcare- This industry as a whole, especially preventative medicine in my view will swell massively in the next few decades. I am going to lose a few followers over this i’m certain but I believe universal healthcare in the United States is pretty much a sure bet sometime in the next 20 years. Which would be good news for GE!
Keeping costs down will likely be a key requirement of any future health system, and with GE’s expertise in imaging for preventative medicine and its emerging analytics and software offerings, it may be able to play an important role in the health systems future, however uncertainties do exist as to the nature of cost controls and the potential for margin compression in all things health related.
Renewables- I am firmly on the alternative energy bandwagon and GE’s positioning in this industry appears very ideal. Wind energy by most measures is already roughly equal in cost per MWh to current fossil fuel plants, this will likely get better with time, and with offshore wind and hydro picking up steam in both efficiency and scale for GE, will open further avenues of growth for this division.
Alternative energy is here to stay, and GE looks to be on a path that requires no subsidies, a major pitfall to solar currently. The downside to wind energy could be the commoditization of wind turbines, however I believe that GE has the technology and service capability to differentiate themselves in this rapidly growing industry for decades to come.
Source: U.S. Energy Information Administration (NYSEMKT:EIA)
So will I say “I do”?
GE has burned me… Badly in the past, and I must say I am rather gun shy about committing to a perhaps multi decade long marriage to the stock.
But she is so damn pretty!
My plan “as of today” is to keep my current position, roughly 2.2% of my equity portfolio in GE for the first half of 2018, to test the waters, if you will, of the new CEO. If I continue to like what I am seeing and the valuation seems fair, which I view it to be currently (a forward PE of 17ish) I may step up to the plate and double my position in the company.
Or maybe I won’t, and I will just run like heck and never come back!
GE: “Hey you, what’s up”
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Disclosure: I am/we are long VWDRY, GE.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.
Yesterday’s contract win by General Electric (NYSE:GE) from Canadian National Railway Co (NYSE:CNI) for 200 locomotives went mostly unnoticed by the market and the news media outlets as the country geared up for the Christmas Holiday. This is one of many recent positive developments that have been ignored by the market as year end tax selling has kept downward pressure on GE along with the doom and gloom that has the stock trading at a 6 year low.
The demise of GE (NYSE:GE) in my opinion is to say the least overblown. Yes the company is having issues with their energy division. Yes they cut the dividend by 50%, Yes the stock is down 46% YTD. Yes there is year end tax selling.
Is there any reason to buy GE at all? I guess that all depends on your tolerance for risk and ability to handle a possible 10% downside from capitulation level lows reached a month ago at $ 17.46 and the recent low on Thursday of $ 17.36, the same day the tax reform bill passed.
GE is out of favor and in the dog house, this is a secret to no one. However it is my belief that GE will be turning the corner much sooner than the market is forecasting. The last six weeks have seen the stock trade in a tight range as the market searches for the ever elusive multi year bottom.
I bought more Friday at $ 17.41,adding to a heavily long position in the stock.
Here are a few headlines that you may have not heard about or seen over the last 30 days that should have moved the stock in a positive direction.
General Electric: CN (CNI) says will acquire 200 new locomotives over the next three years from GE Transportation to accommodate future growth opportunities and drive operational efficiency across its system
From briefing.com TODAY
The locomotives will be produced at the GE Manufacturing Solutions facility in Fort Worth, Texas beginning in 2018. CN’s order is the largest among class I railways since 2014. The first units are expected to be delivered in 2018 with the balance delivered in 2019 and 2020.
GE scores its largest Renewable Energy order in Thailand
- Agreements to build three 90 MW clusters for the Theparak Wind farm in Central Thailand
- 270 MW of total capacity to provide enough electricity to power the equivalent of 120,000+ local homes
- Win supported by the GE Store; strong collaboration between GE Renewable Energy and GE Power.
Bangkok, 13 December 2017 – GE Renewable Energy and GE Power recently announced agreements to provide 270 MW of wind energy capacity to Wind Energy Holding (a member of Thailand’s KPN Group) for the Theparak Wind Farm in Central Thailand.
GE Renewable Energy is set to provide a total of ninety 3.0-137 wind turbines with 156.5m hybrid towers, making those the tallest turbines it has ever installed outside of Europe. Read full details by clicking here.
One third of 66 GE Haliade 150-6MW nacelles depart for Merkur Offshore windfarm
- Complex logistical dance needed to complete project by 2018 remains on-track
- When completed Merkur will be one of Germany’s largest offshore wind farms
- Project will power around 500,000 homes and cut CO2 emissions significantly.
Paris, December 12th 2017 – GE Renewable Energy announces the depart of the last set of nacelles to be shipped this year to Merkur’s Offshore Windfarm logistical hub in Eemshaven Netherlands. By the end of the month this hub will have received 24 nacelles, 24 blades, and several other tower fragments and transition pieces. With all these component in-place, local teams will perform some pre-assembly works while getting prepared for the installation phase that is set to begin mid-February 2018. Click here for more for more details.
GE Power, Egypt’s EETC to connect 120 MW of wind power to national grid through extension of the Gabal El Zayt substation
- Extension of the Gabal El Zayt substation will help connect up to 120 MW of wind power to the national grid from one of the region’s largest wind farms
- GE will also provide local project management, engineering, design, fabrication, the erection of power transformers, site management, testing and commissioning services on a turnkey basis as part of the agreement
Cairo, Egypt; December 11, 2017: GE Power (NYSE: GE) today announced that it has signed an agreement with the Egyptian Electricity Transmission Company (EETC) for the extension of the Gabal El Zayt 22/220 kilovolt (kV) Gas Insulated Substation, connecting an additional 120 megawatts (MW) of power to the national grid by the end of 2018.
The extension will leverage GE Power’s Grid Solutions portfolio, which includes GE’s B105 220 kV gas-insulated switchgear (GIS), in addition to medium and low voltage systems, control and protection systems and auxiliary services. GE will also provide local project management, engineering, design, fabrication, the erection of power transformers, site management, testing and commissioning services on a turnkey basis. You can get more details from the company website at ge.com.
GE Renewable Energy Receives Full Maintenance contract for Alsleben Wind Farm in Germany
November 30, 2017
- 9-year agreement to oversee full maintenance needs for the 54MW Alsleben wind farm
- More than 20 years of services experience in Europe
Salzbergen, 30 November 2017 – GE Renewable Energy today announced it was awarded a Full Maintenance contract for the Alsleben wind farm in Germany by Dortmunder Energie- und Wasserversorgung (DEW21), a subsidiary of the municipal utility of the city of Dortmund in North Rhine-Westphalia, who currently operates the site and its 36 turbines.
The agreement includes the implementation of remote monitoring and regular maintenance intervals as well as the preventive maintenance and replacement of large components when needed. GE Renewable Energy will be responsible for the full maintenance of the facilities over a period of nine years. The agreement was tendered by DEW21 in the framework of a European procurement procedure. More details available at ge.com
A list of large companies to benefit from tax repatriation
GE has 41.9% of their cash overseas, how much they will bring back is unknown but I believe it will be substantial.
Tax Reform Passes!
In a month where stocks rallied on tax reform, GE has GONE NOWHERE.
Today it is testing a yearly low that equals the low in Dec. 2011. Where does it end? Not sure, maybe here. The tax selling is coming to an end and some deep pockets may be stepping in to buy these levels the last several days. I have been buying while knowing it may get a little cheaper.
Tax reform will benefit GE although their tax bill is minimal, repatriation and corporate structure going forward stand to give great benefit to the company. I estimate a minimum of $ 2 to $ 3 a share in value from the new tax structure, we will have to wait until experts confirm my thesis.
To be clear, in my opinion GE should have rallied on the announcement of 12K job cuts or the largest renewable energy deal in Thailand. The stock should have rallied on the 200 locomotive deal with Canadian National railway but it didn’t. It barely showed up in the news.
The art of the shakeout
This is a real phenomenon that is going on as we speak, One negative article after another calling for a frightening drop from the current level of down 45% on the year and years of turnaround.
Deutsche Bank analyst John Inch, who rates GE a Sell with a $ 15 price target. Says they could exit Baker Hughes.
Great, just great, John Inch of Deutsche Bank(NYSE:DB) puts a sell with a target of $ 15? Of course the stock can go to $ 15, any human with a stock chart could see that as a possibility. These type of comments are made all the time at multiyear lows, it does not mean it is going to happen.
Deutsche bank wants to buy GE on the cheap along with everyone else. So here is my take: They could sell Baker Hughes, or keep Baker Hughes and ride the rebound in oil that is coming this spring. I think they should keep it and make it work.
John Inch is a person working for Deutsche Bank, speculating to the downside with his own agenda. GE could trade to $ 15 or also trade to $ 20 next month, place your bets accordingly. Investors should consider using options to hedge the downside if needed.
Perspective from experts
One need look no further then one of my favorite calls by Goldman Sachs (NYSE:GS) a couple years ago calling on iron ore to stay at $ 35 to $ 40 for the next 5 years. Vale (NYSE:VALE) was trading at a multi year low around $ 2.30 a share then. It now trades around $ 12. Maybe Goldman will make the next downside call that marks the bottom for GE.
I was pounding the table when Bank of America, (one of my favorite stocks) (NYSE:BAC) was $ 12.50 in June of last year 2016, it now trades near $ 30. GE will be fine and those buying this level will likely see a 50% upside or more in the next 12 to 18 months. IT pays to ignore the doom and gloom and backward looking forecasting as we move into a new age of corporate and global growth.
In a world where Riot Block chain (RIOT) can rally from $ 6 in November to $ 45 in a month on a name (like dotcom) and no earnings gives me serious pause. RIOT down 50% in a few days by the way should tell you something. Stay away for now from bitcoin unless you are prepared to lose 50% to 98% or more of your money.
A look at the charts.
Here is a 10 year weekly to show the path of GE. Believe it or not I owned GE at $ 8.60 on the day the market bottomed in March of 2009. I bought the bankruptcy rumor that plunged the stock to $ 5.72 in a 30 minute period of time on fake news. It should have been investigated by the SEC, in my view it was straight up mayhem in action. That whole drop from $ 11 to $ 5.72 should have been eliminated from the stock chart and never happened, but it did.
The lesson: keep enough reserve to stay liquid in the event of a catastrophe. At a multi year bottom anything can happen.
One more intraday 60 minute chart showing a solid entry point if you believe in buying low and selling high.
Interested investors can see this intraday 60 minute snapshot of GE from early October which covered the earnings call miss and the November 13th conference call.
Important note: there was capitulation; the stock was bought by insiders, it then sold off on great economic news and tax reform that was not totally expected. The stock made a new low by $ .10 cents on the day tax reform passed, testing the will of those long the stock.
Look for more Insider purchases in the next 30 days.
I will be watching closely and keeping readers apprised of any new insider purchases in the coming weeks as more insiders step up to purchase shares. My last report on insider buying of GE showed the CEO of LOEWS buying 3 million shares on behalf of the company. Interested investors can read the full article by clicking here.
GE is in the dog house, down 45% on the year. The market has so far been ignoring many recent positive developments that would other wise cause a nice relief rally. Year end tax selling is pressuring the stock but I believe many are buying GE right now and not publicly talking about it.
In a world of news dominated by bitcoin and block chain, one could do a lot worse than putting some money to work in GE with a 12 to 24 month time horizon.
The 200 locomotive deal is a great win For GE, the Largest renewable energy order in Thailand is a positive and signal of more to come in SE Asia. All of these events are going unnoticed at the moment which is a good way to get a stock on sale.
At some point in the the near future the narrative will change and it will be all about global growth, and tax reform benefits to corporations. Until then buckle up and buy any weakness from here. The bottom may be in right now or there may be a little more pain but GE has some really exciting things going on including 3D printing that could be amazing for future growth.
I am a buyer of GE at this level and am excited about the digital revolution within the company. Flannery is making the right moves at the right time and it is my belief GE will turn the corner much quicker than the market is forecasting at year end.
As always, do your own research and always have an exit strategy in place before putting your hard earned dollars to work.
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Disclosure: I am/we are long GE,CHK,LYG, BP,NBR.
New York’s attorney general urged the Federal Communications Commission to delay a vote rolling back net neutrality rules because of the large number of fake comments submitted to the agency on the issue.
The FCC is expected to vote on Feb. 14 on Chairman Ajit Pai’s plan to scrap the 2015 landmark net neutrality rules, moving to give broadband service providers sweeping power over what content consumers can access. Pai is a Republican appointed by President Donald Trump.
New York Attorney General Eric Schneiderman has been investigating allegations that more than half of the 21.7 million public comments submitted to the FCC about net neutrality used temporary or duplicate email addresses and appeared to include false or misleading information.
Schneiderman said the FCC agreed on Monday to assist in the probe. “We’re going to hold them to that – and, in the meantime, it’s vital that the FCC delay the vote until we know what happened,” said Schneiderman.
The 2015 rules changed the designation of internet service providers, or ISPs, usually big cable and telephone companies, so they were banned from blocking or throttling (slowing) legal content or from seeking payments to speed delivery of certain content, called “paid prioritization.”
FCC Commissioner Jessica Rosenworcel, who opposes the net neutrality rollback, agreed that the vote should be delayed.
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“The integrity of the public record matters. The FCC needs to get to the bottom of this mess. No vote should take place until a responsible investigation is complete,” she said.
Under Pai’s proposal, the Obama-era rules would be reversed and ISPs would only have to disclose blocking or throttling.
General Electric (GE) is selling its industrial solutions business to Swiss rival ABB for $ 2.6 billion. The company is clearly targeting underperforming plants and putting them up for sale. This is one way to improve its free cash flow problems, and we can expect more of this in the near future. The stock has bounced from its key support level, and bulls are in full control. The new CEO is expected to give an update on the 2018 outlook in November. I expect the stock will continue to recover from its previous losses.
Free Cash Flow
It’s all about free cash flow. As we can see from the below chart, GE’s free cash flow has been sliding. Wall Street analysts estimate the company’s free cash flow for fiscal 2017 at $ 7.5 billion.
Once the company improves its free cash flow, the market will react positively. From a shareholder point of view, free cash flow is very important because it sustains confidence that the company will continue to pay dividends. From the company’s point of view, it has enough free cash flow to service its debt and further expand its business; the company is trying to improve its free cash flow through various measures, such as getting rid of underperforming assets and reducing corporate overhead.
As we can see from the above chart, regardless of declining free cash flow, the stock has still been on the uptrend. In terms of technicals, the stock didn’t break the key support level, but bounced back instead, suggesting that the bulls are in control. With more positive news to be anticipated from the new CEO, I expect the stock will continue to recover from its previous losses.
Oil prices are gradually recovering, so the newly merged Baker Hughes, a GE company (BHGE), should post better earnings. With the help of BHGE and other segments, GE’s free cash flow should improve substantially.
Since the company is working to address its free cash flow problem, it is safe to conclude that there is no serious danger of a dividend payment cut. In 2016, GE’s industrial solutions business generated $ 2.7 billion in total revenue and posted a profit margin of 2.1% (making it one of the least profitable business units). To me, any profit is good–but underperforming business units would be pulling the company’s overall performance down. By getting rid of underperforming plants, amongst other measures, the company should be able to generate higher free cash flow. It’s all about numbers in the end, and based on those numbers, I still recommend GE as a buy.
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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.