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2H'22 Market Outlook: Avoid XLI And General Electric

Aug. 02, 2022 5:20 PM ETGeneral Electric Company (GE), XLIBA, CAT, LMT, MMM, RTX6 Comments


  • Now is a good time to form an outlook for the 2nd half of 2022.
  • The Fed’s recent announcement has provided the needed rates clarity for the remainder of the year, and many bellwether stocks have issued their earnings.
  • We see the industrial sector, represented by Industrial Select Sector SPDR ETF XLI, as a sector to avoid in general.
  • The sector’s valuation premium is near a peak level for the past decade, adjusted for risk-free interest rates.
  • We also have the same view about General Electric, a major stock in the ETF, given its business outlook and current valuation.
  • This idea was discussed in more depth with members of my private investing community, Envision Early Retirement. Learn More »

economic forecasts for 2022. businessman writes forecasts for 2022 on virtual screen. New Year 2022 forecasts. Businessman in suit forecast analysis plan profit chart with pen

Pavel Muravev


As detailed in our earlier article:

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This article was written by

Sensor Unlimited profile picture

Sensor Unlimited is an economist by training with a PhD, with a focus on financial economics. She is a quantitative modeler and for the past decade she has been covering the mortgage market, commercial market, and the banking industry. She writes about asset allocation and ETFs, particularly those related to the overall market, bonds, banking and financial sectors, and housing markets.

Sensor Unlimited contributes to the investing group Envision Early Retirement which is led by Sensor Unlimited. They offer proven solutions to generate both high income and high growth with isolated risks through dynamic asset allocation. Features include: two model portfolios - one for short-term survival/withdrawal and one for aggressive long-term growth, direct access via chat to discuss ideas, monthly updates on all holdings, tax discussions, and ticker critiques by request. Learn More.

Analyst’s Disclosure: I/we have a beneficial long position in the shares of LMT either through stock ownership, options, or other derivatives. 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.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (6)

Another SA article where the author has a time horizon that doesn't go much past noon tomorrow. GE is a whopping buy - in less than two years it will break up into Aviation, Healthcare, and Power, all leaders in their fields. In 4-8 years those who get it today will be very glad they did.
Depreciation can be reasonably compared with capital investment, but amortization?....This usually applies to intangible assets, which do not necessarily require maintenance or replacement.
In addition to the CAPEX issue, there will likely be issues with loss of symbiosis that GE had as a conglomerate. In particular, GE has had a dominant position in the power gas turbine products principally because of its expertise in turbine design. It always had the most efficient and cost-competitive gas turbines. I suspect that most of that turbine expertise will go to the new aerospace company, not the power/renewables company, which seems to have taken the role of the ugly child, even though it is the heritage division, going back over 100 years. So power/renewables seems likely to be even less valuable than people are estimating.
Buying GE on this dip. Expect 2023 to show tremendous progress at get back in-line with the rest of the sector. Tgt 102
Nice analysis! I don’t believe that the market pays nearly enough attention to capex (reinvestments to generate more future revenues/profits). Financial engineering, stock buy-backs, etc. can mask some of that (for awhile), but at some point there are no more rabbits to out of the hat.
franklja profile picture
@Skih20 - you have precisely described what GE did over decades while not properly investing in their core businesses. That's why they now have an empty hat with no more rabbits!
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