In my view, General Electric Company (NYSE:GE) is one of the most perplexing investments available. On one hand, you have a company that does everything, even if supreme expertise falls short in a few areas. You also have the backing of an iconic American institution, and surely, that’s worth something. Still, when all is said and done, General Electric stock has been an unmitigated disaster.
Up until last year’s midpoint, I bought into General Electric’s jack-of-all-trades argument, even though it was a master of few. I felt that enough value existed in multiple GE businesses, and that eventually, it would translate into higher share prices. At the time, General Electric stock was more or less trading around the high-$20 range. It appeared that patient investing would pay off literal and figurative dividends.
Unfortunately, the optimistic forecast didn’t pan out. GE stock routinely hit upside resistance in the markets, pouring blood in the waters for the bears to salivate over. GE the company became overly complicated and began suffering an identity crisis — not to mention an incompetency crisis as well.
It didn’t help matters that in today’s business world, streamlining and specialization is everything. We don’t really value gigantic entities like GE like we used to. Worse yet, Honeywell International Inc. (NYSE:HON) is very similar to General Electric, with the most conspicuous distinction being that Honeywell is actually successful.
I switched sides on GE stock on July 6, 2017, and I’m glad I did. Since then, shares have lost nearly 42%. And broadly speaking, I see no reason to reengage the bullish argument. As has been detailed several times by my InvestorPlace colleagues, there’s no reason to catch a falling knife. But if you are going to catch one, here’s how to do it.
Good News for GE Is Hard to Find, But They Do Exist!
Before anyone states that I’m wholeheartedly endorsing General Electric stock, I’m not. I freely admit this is a knife-catching exercise. If you don’t want excessive drama in your life, buy the SPDR S&P 500 ETF Trust (NYSEARCA:SPY) and revisit it in ten years.
With the caveats out of the way, I think the bears might be overplaying their hand. While the bad news is most certainly bad, you don’t necessarily want to trade yesterday’s headlines. True, the ugliness may not have been fully priced in, but we can all agree that the short trade’s easy money is long gone.
For starters, you should be aware that covering analysts are decisively more negative on GE stock. Against the prior month, GE lost two bullish recommendations, and one analyst issued a firm “sell” recommendation. But when a company has lost half its market value over the trailing year, such negative assessments ring hollow.
Currently, you’ll find rumblings that GE is so bad that General Electric stock will get booted from the Dow Jones. While that sounds almost sacrilegious, for the embattled firm, it could be a blessing in disguise. For one thing, management would no longer have to deal with the pressure of being a Dow 30 company.
Furthermore, getting kicked out of the Dow isn’t such a bad gig. Citigroup Inc (NYSE:C) and General Motors Company (NYSE:GM) were removed from the venerable index on June 1, 2009. Both suffered severe problems, but the booting also catalyzed their newfound focus and success.
And while huge conglomerates are anachronistic these days, they do have one advantage: practically speaking, they’re too big to fail. Politically, we’re talking about thousands of great jobs. Long-term, GE — or somebody — will find a way.
Is the Worst Over for General Electric Stock? Maybe!
If you’re a conservative investor, it’s never a good idea to attempt timing the bottom of the market. No rules exist that you can’t keep losing beyond your “discounted” entry point. Our own Vince Martin made this point clear in his write-up for GE stock.
I 99% agree with Martin. Where I give the 1% leeway is towards speculators who wish to gamble on General Electric stock. If you know what you’re getting yourself into, I argue that GE could have very well hit bottom, or close to it.
Click to Enlarge Starting from the second quarter of 2017, we will almost surely suffer four consecutive quarters of market losses. So far, we’re averaging sequential quarter-to-quarter losses of nearly 14%. That’s massively significant because the last time we saw such ugliness was during the 2008 global financial crisis.
From Q4 2007 to Q1 2009, GE averaged 16.6% losses per quarter. The absolute worst string of losses occurred during the Sept. 11 terrorist attack aftermath. General Electric saw its shares lose seven quarters in a row, averaging almost 9% losses per quarter.
But it should also be noted that after each catastrophe, the company picked itself up from the ashes.
We all know that General Electric stock stinks. But does it stink as bad as the worst financial crisis in modern history, or the worst terrorist attack in American history? If you’re a gambler, the answer is a resounding no.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.