General Electric Company (GE) Stock Is No Longer the Investment It Once Was

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Up until a few years ago, I would’ve been the first to tell you that General Electric Company (NYSE:GE) stock was the first company any investor should purchase in long-term diversified portfolio. The reasons were clear: GE was an amazingly diverse company that executed for decades, paid a solid dividend, and would always do well regardless of what the economy did.

GE Stock
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Yet, ever since hitting its all-time high of about $58 in mid-2000, GE stock remains more than 55% below that point and more than 20% off its 52-week high. Meanwhile, S&P 500 (NYSEARCA:SPY) is up 67%.

So if we look at what has happened annually, investors holding GE stock may notice that EPS has been awful, growing at about 1% on an annualized basis. On an annual basis, earnings since then have only grown around 1% annualized.

In short, GE has failed under Jeffrey Immelt.

GE Goes from Bad to Worse

GE was already struggling when the financial crisis hit. While the entire market fell about 55%, my first inclination that GE was not the all-weather stock I thought hit when it fell 80% off its high and cut its dividend.

This was a shock to the entire world. How could the vaunted GE cut its dividend? Wasn’t it a “blue-chip”? Wasn’t it a “safe stock”?

What the financial crisis taught investors is something that I have built my stock advisory newsletter around. The Liberty Portfolio does not adhere to the notion of “safe stocks” or “blue-chips”. There is no such thing, because not did GE get hammered in the crisis, many other stocks did. Not only that, GE still remains vastly overvalued along with the same big-name stocks that are its peers.

What struck me about GE, and how Immelt not only didn’t replace Jack Welch but failed as a game manager, was that the huge portfolio of products and divisions under GE’s roof meant nothing if he couldn’t grow them.

General Electric also had to face a changing world. Did you know GE closed down its famous appliance division? I didn’t until I walked into a department store and no longer saw its name anywhere.

The idea of a conglomerate is that, if managed correctly, each division not only grows but ideally is integrated with each other. If you watch “Shark Tank” on ABC, then you know Mr. Wonderful has been going after specific companies which he can aggregate under his “Something Wonderful” umbrella – all products that have a similar theme, that you would purchase together.

Instead, GE is behaving more like a monster amoeba from outer space.

And its financials are getting worse, as is the overall business.

Bottom Line for GE Stock

Revenue has fallen from $144.9 billion in FY12 to $120 billion in FY16, a decline of almost 17%. Gross income has been almost cut in half from $75 billion to $40 billion. Net income is down from $14.66 billion to $9.77 billion.

In addition, I hate how GE has been using its cash. It’s been repurchasing stock, despite the fact that the stock is nowhere near cheap. In fact, GE stock and the financial engineering looks a lot more like the slow-motion fail of International Business Machines (NYSE:IBM).

I see no reason to own General Electric stock. While the stock appears to have a floor around $22, there’s no guarantee this will hold. The 3.86% yield is nothing compared to preferred stock yields that carry less risk. We have no idea what a new CEO will do and a turnaround now would be like turning around a cruise ship in a swimming pool.

If you hold GE in a retirement account, I would suggest selling it. If you are sitting on a massive capital gains tax hit, then consider harvesting losses across your portfolio to offset those. I don’t see any upside to holding.

Lawrence Meyers is the CEO of PDL Capital, and manager of the forthcoming Liberty Portfolio stock newsletter. As of this writing, has no position in any stock mentioned. He has 22 years’ experience in the stock market, and has written more than 1,600 articles on investing. Lawrence Meyers can be reached at TheLibertyPortfolio@gmail.com.


Article printed from InvestorPlace Media, https://investorplace.com/2017/10/ge-stock-is-no-investment/.

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