I've been doing a fair amount of chest puffing lately, as many of my moves suggested here and elsewhere have paid huge dividends for investors. Today, I want to highlight one of my mistakes: General Electric Company (NYSE: GE).
Someone is going to own one heck of an asset when this all shakes out. Unfortunately for GE shareholders, there is a very real risk that you will be on the outside looking in when all is said and done.
Each day the odds are growing that bondholders or the government will end up owning the equity in GE. Given the long-term future of the company, those two parties will be quite pleased.
I made GE one of my Top 10 Stocks for 2009, as I believed in that future. Even better, I thought the selling of this otherwise solid industrial concern was overdone.
That was when the stock was trading around $16 per share. Today, after another 10% hit to shares, you can buy GE for $7.60. Shares are down more than 50% in only two months of trading.
I would have been much better off choosing Honeywell International (NYSE: HON) as my industrial play for the list. Instead, like many contrarian investors, I was blinded by the GE glare. The star is too bright to fail -- or so I thought.
I was wrong.
The problem with GE is that there is no clarity. The inability to value the balance sheet results in investors assuming the worst case. Day after day, we see financial services firms sucked into the vortex.
There seems to be no end in sight.
The reason for the losses in GE today can be traced back to the billions lost at American International Group, Inc. (NYSE: AIG) and a government intervention that is wiping out common shareholder value.
Will General Electric be next?
Investors are placing bets that, indeed, GE will be the next great failure during this unprecedented crisis. Last week, the company cut its dividend, but did not eliminate it, in order to preserve cash.
Some were praising the fact that a 10-cent dividend was left on the table. I'm cynical. I believe that the move was symbolic at best. Management wants you to think that all is well given that some cash flow was preserved for the dividend.
That's a big mistake. Even though I am a fan of GE, I am critical of this move. There is way too much uncertainty to leave any dividend on the table, in my opinion. Hopefully I am wrong, but I don't like this move by management.
Louis Navellier's PortfolioGrader Pro, which offers free ratings for nearly 5,000 Wall Street stocks, rates GE an F, or Strong Sell.
Jamie Dlugosch is a contributor to InvestorPlace.com.
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Reader Comments (Page 1 of 1)
3-03-2009 @ 10:39AM
Kent said...
GE has to take a look at itself and honestly ask themselves if their business model is sustainable in today's economic environment. Currently broken down into IT, industrial and environmental groups may have worked before when Jack Welch revolutionized this concept in the 70's, but apparently no more. May be it's time for Immelt to take charge of the situation and re-invent GE again rather shuffling companies around like a deck of cards.
3-03-2009 @ 11:08AM
jerry h smith said...
GE'S STOCK DROPS EVERY DAY. THE FIRST THING THE BOARD OF DIRECTORS NEED TO BE FIRED THEN IMMELT NEEDES TO BE FIRED.
IF GE CAPITAL AND THEIR OTHER MORTAGE HOLDINGS ARE DRAGING THE COMPANY DOWN WHY DON'T THEY TAKE THESE BUSINESS AND PUT INTO A SEPERATE COMPANY AND IF INVESTORS WANTED TO INVEST INTO MORTAGES THEY COULD DO SO AND THE OLD GE COULD PROSPER
3-14-2009 @ 12:56AM
ValueHuntr said...
GE is now undervalued, and the dividend cut is actually a positive. See detailed analysis at:
http://valuehuntr.com/2009/03/10/general-electric-company-nyse-ge/