After throwing in the towel on General Electric Company (NYSE:GE), the so-called “Murphy’s Law” was bound to get me. For quite some time, I was bullish on GE stock. My thinking at the time was that the company’s broad range of businesses made it comparatively resistant to volatility. What I should have realized was that diversity in and of itself is neither virtue nor vice.
Politically, terms such as diversity or tolerance are imbued with moralistic connotations. However, the textbook definition of these words have no native moral trajectory. They are simply descriptors.
What matters is how we use diversity or tolerance. Over the years, General Electric ended up as a jack-of-all-trades and master of none. It’s no wonder why GE stock failed to take off.
Investors aren’t looking for a company that acts as its own hedge fund; that’s what hedge funds are for! Instead, they want strong leadership, clear vision and ultimately, execution. Under former CEO Jeff Immelt, General Electric lacked the first two attributes. Without effective guidance, the beleaguered firm failed to execute, and GE stock took a turn for the worst.
Many analysts and experts, including our own Dana Blankenhorn, consistently called for Immelt to lose his job. Now that he’s out of the picture, Blankenhorn is at least willing to consider GE stock as a dividend play. It might work. Then again, if GE loses more than its dividend yield in the markets, investors aren’t going to be too pleased.
This is my third article on GE stock since switching to a bearish outlook. As the days go by, I feel increasingly confident that I made the right decision.
Poor Market Consensus on GE stock
We can talk all we want about implied value and discounted opportunities. At the end of the day, the markets represent the ultimate consensus. Actual investors and traders are the ones putting money on the table. Their collective activities determine which opinion is the right one at that particular moment in time. So far, we’re not seeing anything encouraging from GE stock.
Of the bearish entries, only four names — Verizon Communications Inc. (NYSE:VZ), Exxon Mobil Corporation (NYSE:XOM), International Business Machines Corp. (NYSE:IBM), and GE — currently suffer double-digit YTD losses. Not surprisingly, Exxon Mobil, as well as Chevron Corporation (NYSE:CVX), are among the Dow’s laggards. Both of their declines serve as a reminder of General Electric’s badly-managed oil ventures.
Unfortunately, the markets are giving no quarter to GE stock. After a tumultuous January, shares managed to stay moderately range-bound between February to mid-April. After that, GE nosedived. I’m not sure when the pain will let up, given the sharp and sudden bearishness.
It’s also telling that on July 6 — one of the worst single-day selloffs this year — my bearish article on GE was published. Despite the unlucky timing, General Electric is down against the publication date. For good measure, I issued a warning again on July 31, and shares are still in the red!
General Electric: Pick a Lane and Go with It
Over the years, General Electric forged a regrettable reputation as a convoluted organization with no direction. Much of this has to do with the former CEO. Immelt took an icon, and converted it to an institution that was supposed to be all things for all people. Such an ambitious target, however, was doomed for failure.
This everyman, everything attempt reminds me of Blankenhorn’s suggestion a few months back. “Split the whole thing up. Give me a cloud company, a power company, a renewables outfit and a healthcare company.”
I would add one more challenge. GE’s remaining businesses are not necessarily enticing. Whether they split or stay together, GE stock will be weighed down from investors seeking better alternatives. The cloud is one of the most competitive sectors in business. Energy, irrespective of origin, is always a tough and unpredictable market. And healthcare is, well, healthcare.
Sadly, the prior leadership team made a real mess of things at General Electric. With a new era upon us, I’d like to think that a turnaround is probable. That day might come, but I have difficulty justifying a position right now. Management has a lot to prove, but in the meantime, I fear GE stock will absorb some hits.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.