GE: Struggling Short-Term, But Should Do Fine Long-Term

General Electric (GE) is another of my holdings that's been in free fall. Though it's in positive territory today as I'm writing, it's trending down for a few reasons. GE has no exposure to US mortgages. However, GE has exposure mortgage assets outside the US. These are insured by AIG, which is in danger of going belly up.

Next, GE is involved in the credit card business. Investors think more consumer defaults are coming. Investors are concerned that GE will lose its AAA credit rating.

Additionally, the bankrupt Lehman Brothers owned some $500 million worth of GE shares. That's not that much compared to GE's market cap, but it's pretty big in absolute terms.

I think GE will do fine over the long term. In the meantime, I hope that the price will stay depressed for a while so my dividends are reinvested at current or lower prices.

Disclosure: Long GE

Comments

[Gaucho420:]

Long term holder of GE, bought some again today. The co. will be fine, no worries...I would hope the the market malaise leads GE to be an acquirere of companies to grow various businesses in the future. Lots of cheap stuff out there and GE (unlike JPM, BAC or C) has yet to lose a dime, as it still reports profits. So let's hope GE gets back on track and makes some timely purchases to augment its various businesses.

Long GE, especially at the current prices.

2008 Sep 16 04:25 PM

[poppop13:]

I also bought more GE today. However, there are the gang of short buyers that are in my opinion taking a solid company like GE and leveraging these short sales to drive the price down. I hope they lose their shirts.

2008 Sep 16 05:50 PM

[icandoitdon:]

if you haven't looked at the option prices on GE and how much they've spiked in recent days i suggest you do so.

you pay 60 cents for a october 15 put option. that is, option traders are making roughly a 6% bet that GE trades down to 15 in the next 5 weeks. there is a 15% chance that it trades down to 20 in the next 5 weeks. in contrast there is just a 5% chance that it trades up to 30.

in this environment, i wouldn't be long anything with a large financial component without having put protection. GE is subject to significant credit risk. the question is whether they have adequate reserves. the market will tell you that before they do.

2008 Sep 16 05:59 PM

[dawase@gmai...:]

Long time holder of GE. Sold off half my position today. While I think that long-term they'll be fine because they are focusing on a great set of core lines, in the near term, the Finance arm is a little too much of a black box for me.

I think they've made some strides in cleaning up their b/s, but I'd be surprised if there wasn't some nastiness left.

Disclosure: Long GE, but less so than yesterday.

2008 Sep 16 11:38 PM

[longandshort:]

There is a simple way to prevent Option traders from realizing their $15 put option...........DO NOT sell GE stock if you belive its a strong company. ..simple! Its only a game of supply and demand folks!

2008 Sep 17 12:51 AM

[GregT:]

The big risks are credit ratings downgrade or unexpected writedowns in the financial services unit.

However, if neither of these happens by the time they report quarterly earnings, we should see some strength in the stock. There are big advantages in this market to having a AAA credit rating. GE will be able to do deals profitably that others won't. Take a look at WFC. They have lots of access to cheap capital and they have grown their revenues tremendously because their competitors are having trouble.

It's not often that you can get a company with this kind of quality at such a good price.

2008 Sep 17 07:16 AM

[buyforeclos...:]

The AIG fiasco is going to hurt GE alot morew than you think and that is why put options are up... yes good company but could be in for some near term pain to $20 pps ..I think $15 is a bit much but who knows anymore...it could happen

2008 Sep 17 09:52 AM

[snowboy:]

get out of the credit business,its a millstone around your corporate neck,I still think GE is a good buy at todays price but must be held for the long term to really pay off,the generous dividend helps.I remain long on GE

2008 Sep 17 10:27 AM

[capgain:]

So what if Lehman owned $500 MM GE shares?? That has no effect on GE's share price. The price pressure on GE stock is what I have characterized over many years as "lemmingfear". It is about as meaningful as last Thursday's newspaper! If you are long GE, just remember why you took that position. Was your reasoning incorrect? Is the company so badly impacted by the current turmoil? Or is it in an enviable position to perhaps pick up some bargain-priced assets?

Having just bought a fistful of Jan 2010 in-the-money calls at panic prices, I am going back to work and then going on vacation without having to worry about this Chicken Little operetta.

2008 Sep 17 10:39 AM

[svosavvy:]

I agree with capgain. Now if ge bought 500 mil of leh then I would be a little jittery. For me I have a really unsophistcated approach to this: half of revenue and earnings are put up by their finacial unit, before panick set in this thing was sailing nicely at forty bucks. If ge finance is a non starter then the downside imho is 20 bucks, but, they are due to report something like 1.7 bil profit (maybe I have that wrong) which isn't much, but, isn't a loss either. I also have the luxury of an 18 year time horizon, so I am sitting back and watching the fireworks. This is a dream bank stock, a bank stock that has 2 things others don't 1: real cash and 2: marketable assets not that overpriced mcmansion crap (honestly, who wants to live in one of them anyway) If you can afford a mcmansion then for goodness sake buy some land to put it on and improve your scenery (sorry, countryboy at heart).

2008 Sep 17 12:22 PM

[WEBISKING:]

I dont think company is bad.But since 1999 the cash flow minues the capital expenditures has actually DECREASED. PM and Mo off yesterdays low are MUCH better investments with alowerPE higher dividend and they dont have a clown running th company like GE does. Fact is GE capital is too complex to understnd

2008 Sep 18 08:08 AM

[jse17:]

Forget all you know (or do not know) regarding the stock analysis of GE. On the most foundational basis possible, if GE cannot live long and prosper in the US with over 70% of its earnings generated globally, it is time to get the hell out and move St. Elsewhere.

Think what US firm will most flourish post the election predicated on non-carbon based energy R&D and massive expenditures for collapsing infrastructure! No, it will NOT be Halliburton, Bechtel, the pharmaceuticals, or Wall Street financials.

2008 Sep 18 08:12 AM

[Chris B:]

I hope short sellers take GE down. It might then be cheap enough for me (and you) to buy. Why the anger? Does any unleveraged investor have to sell at temporary lows? Does anyone think short sellers can keep a cash-cow company down forever?

2008 Sep 18 05:23 PM

[jse17:]

GE’s current PE is around 10.7. Yes, GE may well get cheaper but on the other hand, a PE of 17-18 is reasonable in context of the company’s positions. Morningstar Premium states GE’s fair market value at $41 and Morningstar is conservative plus!

GE went ex today with a payment day of 10/27/08 in place. It is reasonable to believe the next dividend will be increased consistent with GE’s wonderful history of approximately 33- consecutive yearly dividend increases.

When Lou Rukeyser on the old Wall Street Week program would ask one of the show’s favorite guests, Julius Westheimer, when it was time to buy, Julius would reply, “Buy when you have the money!” I will add to this thought to buy when the likelihood of the stop doubling exceeds the probability of the issue loosing 50% of its value.

I am long GE.

2008 Sep 18 07:13 PM