Why the Time May Be Right for GE and Patient Investors

Just when it appeared things were turning around at General Electric (NYSE:GE), circumstances conspired against the company. GE stock investors, meanwhile, continued to suffer.

GE logo on an airplane engine
Source: Sergey Kohl / Shutterstock.com

Storm clouds hover over GE’s diversified segments. The company’s operations, like those of every other major firm, are diminished by the novel coronavirus and the global pandemic it caused.

Nevertheless, there are reasons to be optimistic about GE – especially for investors who see the glass is half full.

It may be time to buy shares.

What Would Thomas Do?

To say that GE is an historic American company verges on understatement. In the 1880s, a fellow named Thomas Edison was busy with lights, electricity and such. Backed by J.P. Morgan and Anthony Drexel, Edison’s efforts led to the formation of Edison General Electric Company in New York. That was followed by a merger with another electric company in Massachusetts, which led to General Electric in 1892.

Tremendous momentum and fortunate hiring sent the company on its way. It was a pacesetter in research and technology, plastics and computers. Well over a century later, the history is impressive and at times, disappointing.

One cannot help but wonder how Edison would view the company’s current state.

In hindsight, missed opportunities and poor decisions are obvious. Leadership can be inspired, adequate or awful. General Electric has been around long enough to experienced them all. And GE stock rose and fell along the way.

Eyes Are on Current Leaders

GE’s current situation certainly is testing the company’s managers.

The once-soaring multinational was removed from the Dow Jones Industrial Average in 2018 after some 122 years. In fact, it was one of the original 12 companies selected to create the index in 1896.

Over the last 15 years, GE stock went from trading in the mid-$20s to the price of a fast-food combo meal.

Shares prices plunged from about $19 in 2008 to $9 a year later, slowly regaining ground to about $28 in 2016, then dipping to about $12 in 2018. Currently, GE stock is trading around $6. This is very close to its 52-week low of $5.48 and significantly off its 52-week high of $13.26.

Historians will rate 2018 as a key year for GE. That was the year it was kicked from the Dow, cut its dividend to nearly zero and hired current CEO Larry Culp Jr. Two years later, Culp has won respect for progress in getting its financial house in order. He has generated hope he can successfully guide the company forward.

Now that Covid-19 has hobbled the global economy, however, Culp’s stewardship is facing stress from many quarters.

Aviation, Warren Buffett and GE Stock

General Electric operates several segments, chief among them aviation. It generates a lot of money for the company and, when the aviation industry slumps, this pulls GE down too. This is a clear impact of the pandemic and why the response to Covid-19 matters so much to the economy.

My InvestorPlace colleague Larry Ramer recently labeled GE was one of five stocks set to surge if federal lawmakers agree on the next round of economic stimulus legislation. This surge will come via the company’s aviation segment, Ramer says.

The airline industry is struggling mightily after the near disappearance of travel in the wake of the pandemic. Parked airplanes and teetering airline companies aren’t good news for GE’s aviation arm, which builds jet engines and provides servicing.

Noted U.S. investor Warren Buffett recently sent a shudder through the air travel arena when he said his Berkshire Hathaway (NYSE:BRK.A,NYSE:BRK.B) ended its airline investments. He blamed Covid-19 and predicted the effects would be long-lasting.

“When we sell something, very often it’s going to be our entire stake,” Buffett told his shareholders. “We don’t trim positions.”

The Bottom Line on General Electric

These are difficult days for this iconic American name, and clearly the challenges for Culp and company won’t diminish soon.

Investors face a dilemma. GE stock is cheap, very cheap. But the hurdles the company faces are steep, very steep.

GE stock is worth serious consideration, though, because Culp’s actions prior to the pandemic were the right course. The company’s cash flow and financial condition have it poised to recover quickly. But this recovery likely takes quite a while to realize.

As Luke Lango pointed out in InvestorPlace, “Ostensibly, it looks like you wouldn’t want to touch GE stock with a nine-foot pole. But it’s those types of situations which make for compelling contrarian investment opportunities.”

I agree with Luke. But before jumping in, seriously evaluate your risk tolerance and patience. If those are strong, GE stock could be for you.

On the date of publication, Larry Sullivan did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.

Larry Sullivan is a veteran journalist in Florida who has covered banking and finance for several years. He is a former investing editor at U.S. News & World Report in Washington D.C.

Article printed from InvestorPlace Media, https://investorplace.com/2020/09/why-the-time-may-be-right-for-ge-stock-and-patient-investors/.

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