As he usually does, CNBC’s Jim Cramer generated headlines when he stated that both General Electric (NYSE:GE) and Ford (NYSE:F) are headed back to double-digit prices. As you know, both companies were heavily challenged prior to the novel coronavirus pandemic. But the pressures of this crisis has drawn significant concerns, especially for GE stock.
Unfortunately for the once-iconic industrial giant, General Electric’s fortune is tied to the aviation industry. But that entire sector crashed and burned when the coronavirus impacted global economies. With airplanes for months sitting on tarmacs, it seemed as if GE stock was headed for implosion. Say what you want about the company’s other revenue channels, it’s the aviation unit that really matters.
However, there is a case to be made that the negative sentiment toward GE stock is slightly overdone. Should the U.S. healthcare complex succeed in developing and forwarding a safe, viable vaccine, that could help turn the ship around. Here’s a breakdown of Cramer’s argument via a CNBC report:
Cramer sees green shoots ahead for both companies, much as the analysts who upgraded their stocks. He expects GE’s aviation business to benefit from a slowly rebounding air travel market and from the prospect of Boeing getting the troubled 737 Max airplanes, for which GE is a supplier, back in the air soon. Ford can benefit from a rebounding car market, he added.
Moreover, another factor that could come into play is Asia. As CNN recently reported, the Asia-Pacific region is handling the Covid-19 crisis far better than western nations. Worryingly, as the news outlet argues, the west is not learning critical lessons that Asia has implicitly taught.
This implies that Asian markets, particularly their aviation sector, will recover quicker than the U.S. and Europe. If so, that would be a welcome shot in the arm for GE stock, which has been bouncing from one piece of bad news to another.
Still, if you’re going to take this approach, you should be very careful about your exposure to General Electric.
Asia Is No Panacea for GE Stock
On the surface, the Asian region’s coronavirus mitigation performance appears like a contrarian play on GE stock. First, you have a much unloved investment in General Electric, which continues to stretch credibility. Second, Asian societies have rebounded, promoting a believable recovery narrative.
Take for instance South Korea. As the above CNN report noted, the Koreans have put on a world-class demonstration of mass testing and contact tracing. At one point, Korea was one of the epicenters of the pandemic. Now, it barely registers as an afterthought.
More importantly, research published by the National Institutes of Health indicates that while trust in Korea’s press and religious institutions declined, “trust in Korean society, people, and the central and local governments improved substantially…” And it’s in these areas of improvement which has the most significance economically, thereby lifting the contrarian case for GE stock.
Plus, I’d like to add that if the Summer Olympics goes ahead in 2021 in Tokyo, Japan, the international airliner industry may receive a much-needed boost. That too could see a speculative rise in demand for GE stock.
Nevertheless, caution is the word of the day. Yes, Asia is wonderful and all, bringing in $20.2 billion in 2019, GE’s second-largest market. But the problem is that the U.S. alone hauled in $39.4 billion last year. Until the situation dramatically improves here, General Electric faces an uphill battle.
And I’m sorry, but the reason why investors love Asia is also the reason why they may dislike the U.S. and western countries. In Asia, you see people cooperating with each other for the greater good through mitigation protocols and social distancing. In America, you have idiots who are screaming about their constitutional rights.
Frankly, I’m not surprised that some Americans have had trouble adapting to the new normal. We live in a diverse country and one of the consequences of that is the lack of social trust. Unless we implement a protocol of collective commitment and sacrifice – such as mandatory federal service for all American citizens – it’s likely impossible for a highly diverse nation to unite for the common good.
That’s because it’s too easy for anyone to become an American citizen. And this ease of “paper” integration fosters an environment of competing cultures and mores. Further, when the mainstream media propagates the importance of our differences much more frequently than what unites us, the result is exactly what you see: absolute chaos.
And chaos is not good for GE stock.
Cramer Is Right: Ford Is Better
Interestingly, while Cramer mentioned GE and Ford as recovery plays, he had a favorite. He stated, “Longer term, I think both Ford and General Electric are headed back to the double digits but if you only want one of these Robinhood favorites in your portfolio, I would go with Ford.”
Coincidentally, so would I. And I have.
One of the sociological differences between GE and Ford is that the former focuses on integration while the latter focuses on independence. Please note that the Ford Mustang Mach-E upset “true” Mustang fans because the latest bearer of the iconic brand is an SUV.
But you know what? SUVs are practical. You can stuff people and cargo and go on lengthy road trips. Pony cars? Not so much. Essentially, SUVs cocoon people from other people.
With GE, its flagship aviation unit is about bringing people together in close spaces. That works in Asia, as I have demonstrated. In America and the west? Again, not so much.
On the date of publication, Josh Enomoto held a long position in F stock.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.
