After a nifty rebound off a 52-week low of $5.73, industrial and financial services giant General Electric (NYSE: GE) is in a weird place. The company's shares are trading at around $11.75, which is well below the $15 levels achieved in early May. This would seem odd as GE appears to be well positioned for the Green Shoots Scenario. The company has a big presence in alternative energy, health care solutions, and industrial products -- all big beneficiaries of both the Obama stimulus package and a nascent economic rebound.
So why does the market seem to be scared of GE? A couple of key reasons. First, GE's investments in commercial real estate (CRE) are looking increasingly toxic as the rate of CRE failures soars and CRE debt remains difficult to roll over.
Second, the airline industry is looking extremely vulnerable and that represents a large chunk of business to GE on both the industrial and the financial services side. Lastly, investors are worried that GE's inability to pay off TARP funds in a timely fashion will put it at a disadvantage as compared to competitors like Goldman Sachs (NYSE: GS) -- TARP slows you down and makes it easy for Uncle Sam to run your business, conventional wisdom holds.
Correction: GE did not participate in the TARP program. However, GE Capital, GE's finance arm, has participated in other Federal guarantee programs, including the U.S. Government's Commercial Paper Funding Facility and FDIC's Temporary Loan Guarantee Program, called the CPFF and TLGP respectively. According to Bloomberg, GE Capital was one of the first participants in the CPFF. According to The Washington Post, GE Capital is the largest TLGP recipient.
The pros and cons of GE line up evenly. Piqqem Sentiment for GE has been trending bullish for the past few weeks. On the other hand, the problems in commercial real estate are very hard to fathom and could be nearly on par with the problems with the residential mortgage market. At a price-to-earnings ratio of 7.28, GE seems extremely cheap by historical standards.
Then again, it has been the worst performing stock in the in the Dow Jones in 2009, declining by a whopping 22-plus percent in one of the biggest bull markets ever. That's a hard tide to swim against, even for contrarians, and particularly in an environment when other value plays boast higher dividends and cleaner balance sheets.
Alex Salkever is the Director of Research at Piqqem.com, a stock prediction community powered by Crowd Wisdom.
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Reader Comments (Page 1 of 1)
7-02-2009 @ 10:41AM
Mark said...
GE has not accepted any TARP funds, and thus does not need to pay them back.
7-02-2009 @ 11:09AM
Anne Eisele said...
Anne from GE here: Your post today about GE contains a significant factual error that calls into question your knowledge about the company and what investors should or should not be mindful of in assessing company stock.
GE does NOT participate in the TARP program and never has. So the notion that investors might worry about its ability to "repay TARP funds in a timely fashion" makes absolutely no sense whatsoever. We have no funds to repay since we never received any.
Please feel free to contact GE to ensure future coverage is more informed.
7-02-2009 @ 6:50PM
Steve said...
low of 5.73 now over 11..lot of stocks out there doing worse then that.I wish I could double my money in 3 months all the time.
7-02-2009 @ 7:02PM
Dan Barnett said...
Remember there is a constant drumbeat on the "failures" of GE on Fox Networks, both News & Business. The constant repitition of bad news (legitimate or otherwise) can't be good.
7-06-2009 @ 4:46PM
Neil George said...
I had this to say about GE on May 12:
"Over the coming 3 years including the coming few months - GE has to rollover some 250 billion in publicly placed bonds and bank loans. That compares poorly with its current market capitalization at a mere 143 billion dollars.
Worse of course is that the fixed debt of the company is nearly 500 percent of its net common equity - so if indeed it was a bank - even the US Federal Reserve's Bank stress test would have kicked the you know what out of this company.
And if you need to know what's causing this major, supposedly well-diversified industrial to fare so poorly - let's look at the make up ofthe revenue flows for GE.
The biggest chunks of revenues for the last fiscal year were capital and consumer finance. And add in its entertainment units - and the combination swells to over 46 percent.
So, with media getting stuck with lower ad revenues and wandering ears and eyeballs - on top of the known challenges in credit markets - no wonder GE has deeper issues that are kept behind the window dressing of its industrial and other technological product and business lines."
Moreover, be warned that a number of widely-held mutual funds hold GE, so be sure to check any that you own. You can read the entire article at:
http://stocksthatpayyou.com/general-electric-toxic-asset.html