Legal cases can give a bad image of a company and lead to financial losses as well. General Electric (GE) is currently attempting to offset these kinds of issues, and it certainly has a good amount of positive news to help it do so. I believe the company may face rather small losses over the next couple of days, but it should soon stabilize as the positive events begin to help the company's image recover.
A bad situation is drawing to a close for General Electric, and while it will have a poor impact on the stock, things could have certainly been much worse. General Electric has been dealing with a court case related to victims of the Ponzi scheme, and it has recently agreed to a $19 million settlement. Tom Petters devised and carried out this scheme. General Electric conducted business with him though, and testimony suggested that the company should have been aware of his fraudulent activities and did not act properly in the situation. The original claim against General Electric would have cost it $293.5 million, however, so this settlement is fairly minor by comparison.
The settlement will certainly still have a financial impact on the company, and this will have a negative impact on the stock. More importantly, however, this will also draw attention to General Electric's poor actions related to the scheme. The bad image this portrays will add to the financial strains and further hurt the performance of the stock. For longer term investors, however, it may be comforting for this case to finally be over. As time passes, this will likely become increasingly inconsequential in how the public views General Electric.
For the moment, however, the company needs to redirect attention to some of its positive aspects. Stockholders will be pleased to learn it is doing just that.
General Electric has recently announced that its $80 million Chengdu Innovation Center is complete. This center in China will involve both marketing and research and development, and among other things, it will focus on "local healthcare, shale gas drilling technology, new industrial automation solution, and green energy." This project gives a much stronger image of the company. This level of growth is always a cause for excitement, but the project will also be beneficial to local residents and the planet through the emphasis on healthcare and green energy. This announcement comes at a timely moment, as it will offset the legal case a little and present General Electric as a more responsive, caring company.
Demonstrating even further growth for the company, General Electric is planning to acquire the mining equipment companies Industrea and Fairchild. Across the world, demand is high in this industry, so it seems like a fairly safe move for General Electric to become involved in it now. This is just one thing helping it to overcome the poor image from the legal case, as this acquisition may improve business even more, making this an attractive stock to potential investors.
In other positive news, General Electric is currently helping to meet Iraq's energy needs. It is supplying turbines to the Taji Power Plant-the most recent project in Baghdad-and to a number of other projects across Iraq. This reinforces General Electric's image as an important company that benefits countries worldwide. Furthermore, it continues to show growth and will help the company gain strength in countries like Iraq that are currently facing a great demand for energy.
While the concerns are continuing to growth over the financial situation developing in Europe, furthermore, General Electric is maintaining confidence in its ability to overcome whatever issues follow. It is more invested in European countries that have been stronger in financial terms, and while the situation will not be good for the company, it believes it will be "manageable." This announcement is also helping to combat the bad publicity from the legal case and will reassure investors that the company is strong and prepared to handle the potentially-bad situation.
Other companies are not showing this same confidence, as even Germany and France's economies are beginning to struggle. This is worse news for competitor Siemens (SI), as it is actually a German company and acknowledges that its growth in the German market is going to slow down. As the situation grows worse in the continent, European competitors of General Electric will face much greater difficulties. As a result, General Electric may become a much better stock, as it is in a better place to handle the situation than many of its competitors.
Competitor Koninklijke Philips Electronics (PHG) may face similar trouble, as it is in the Netherlands, but it is remaining strong by introducing its new TruGroove lineup. This provides better-than-average energy densities along with a number of other innovative and high-quality features. This is a big move that will help the company compete in an age where energy efficiency is so important, although people do not want to sacrifice quality either. I believe the stock will improve as a result, but as the crisis in Europe continues to develop, this stock may begin to struggle despite in spite of this innovation.
Investors want security with Europe, and most companies cannot give it to them. The CEO of Honeywell International (HON) recently indicated uncertainty over the situation, and after this, the stock began to drop. The situation in Europe is not the only one putting a strain on these companies though. 3M (MMM), United Technologies (UTX), and General Electric have indicated that sales in China have been falling with the slowed rate in growth for the country. Even General Electric, therefore, has not been able avoid this kind of uncertainty with the economic situation. Its confidence regarding the situation in Europe will hopefully still give it an edge. Since everything still appears so risky, however, I would anticipate all of these stocks falling as a result of these announcements.
General Electric's settlement is not a minor story, as it will hurt the company in financial terms and also in relation to its public image. The situations in Europe and China are also cause for concern from investors. General Electric seems more confident about its ability to recover from the potential crisis though, and it has been strengthening its company in recent news stories. As a result, I believe General Electric will drop a little, but it will soon be stabilizing. For long-term investors, I believe this company is in a much better position than its competitors, so it may be a very good stock to consider.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.