A reader asked me recently about General Electric (NYSE:GE) after a “financial professional” had put him into GE stock in a big way and hadn’t gotten him out as it crashed and burned. With the shares hovering at around $9.50 a piece, what should he do?
My first reaction was to scream “sell!”. Then it looked like new CEO Larry Culp had a handle on things, selling GE’s biopharma assets to his former employer, Danaher (NYSE:DHR) for $21.4 billion. The stock rose back to more than $10 per share.
Maybe, hold, I thought?
No. Culp said this week that GE Power will be burning cash for years and with that, GE stock fell back to its March 7 opening bid of $9.09.
Too Late?
If you ignored my repeated warnings over the last year to get out of GE stock , you have lost more than two-thirds of your investment since mid-2016, along with almost all of your dividend.
GE, once a mainstay of the Dow Jones 30 Industrials and its last original member before getting the boot in June 2018, is now a shell of its former self. The reader’s note infuriated me. How could a financial professional keep a client aboard this plane while it crashed?
Worrying about GE, predicting either its recovery or imminent demise, has become a cottage industry as John Flannery, then Larry Culp, struggled to come to grips with the value destruction wrought by Jeff Immelt.
The problem is GE Power. Immelt bet the company on oil and gas just as renewable energy, especially efficiency, was taking off. Then came production problems.
Too Early?
Culp, who built Danaher into a cutting-edge technology conglomerate before taking early retirement at the Harvard Business School, a few miles from Immelt’s new Boston headquarters, has a different plan.
Instead of spinning out GE Health, as Flannery planned, Culp seems determined to keep it. Cutting-edge health technology was at the heart of his success at Danaher.
Culp has even talked about restoring the dividend which, if it returned to its original level, 30 cents per share, would yield more than 10% at the stock’s current price. If he could fix the cash flow problems at GE Power, the rest of the company — aviation, health care, and renewable energy — can succeed.
Culp said all the right things and seemed to be doing the right things. Some analysts began coming around. Others counseled patience.
Then came the news on industrial cash flow. Even with all its troubles, GE still generated $4.5 billion in industrial free cash flow last year. Now Culp says that will be negative in 2019.
The Bottom Line on GE Stock
Culp seems like an honorable man. Flannery also seemed like an honorable man. Even Immelt, in his heyday, was considered an honorable man. They are all honorable men, yet the body of General Electric remains there, bleeding on the floor, as we approach the ides of March.
Culp admits he can’t fix GE Power this year, or even next year. It will continue to drag down results. Meanwhile the company’s debt, which now amounts to more than 3.5 times its equity, must be paid, with $26 billion maturing in the next few years. Culp is now thinking of selling part of the renewables business.
There are analysts who, even today, pound the table for GE stock. These people are fools.
You may get a better price for General Electric stock tomorrow or the next day. Stock prices are volatile. But it won’t be much higher, not for years, not until Culp can see the light at the end of the current dark tunnel.
Until then your money should be doing something else.
Dana Blankenhorn is a financial and technology journalist. He is the author of a new mystery thriller, The Reluctant Detective Finds Her Family, available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this article.
