What’s left to say about General Electric (NYSE:GE) stock? Before the novel coronavirus, the company already had a heap of problems. But now the floundering conglomerate is in an even worse place.
GE stock has been a turnaround play for years. Since CEO Larry Culp took the reins in 2018, the company has made big efforts to unwind its weaker segments and focus on its stronger businesses. Yet things outside its control always seem to get into its way.
First, it was the Boeing (NYSE:BA) 737 MAX grounding. That hurt GE Aviation, the company’s flagship unit. But the novel coronavirus means even more trouble for this major operating division. And this is the “good” part of the company we’re talking about! So how about their other units?
GE Power? After burning through cash during better economic times, expect more losses. GE Capital? The company has very little to gain, and a lot to lose, from their financial services division.
The company’s last unit, GE Healthcare, may have some strengths. But that’s far from enough to make this a great opportunity, even as shares sell near all-time lows.
In short, there’s a lot of opportunities to buy major stocks on the cheap in this market. But, GE stock doesn’t belong on your list of “screaming buys.”
Can GE Stock Head Back To Double Digits?
As it stands now, General Electric trades around $6.50 per share. The stock hit similar price levels during the 2018 correction, and during the Great Recession. Both times, shares bounced back to double-digits.
This time things are different, to say the least. Unlike prior times shares fell below $10 per share, the stock could linger at this price level for quite some time.
Why? Bad fundamentals and a weak balance sheet. You may still think of General Electric as the financially-strong conglomerate of yesteryear, but that’s all ancient history. Present day, the company is a has-been at best and a dinosaur at worst.
The situation wouldn’t be so bad if GE Aviation was firing at all cylinders. This unit made up more than one-third of 2019 sales. But with less than 40% of commercial jets currently flying, the unit’s real profit center (servicing jet engines) isn’t exactly setting the world on fire right now.
With its crown jewel in the doghouse, can GE’s other businesses to pick up the slack? I wouldn’t bet on it. GE Power continues to be a money pit. Further costly restructuring is needed to bring it back to profitability.
GE Healthcare? Things are likely holding steady, especially with the company increasing manufacturing capacity in the wake of the coronavirus. But while round-the-clock production of ventilators may make for great PR, I doubt this alone can shore up the company.
That leaves us with GE Capital. But if the Aviation unit is a distressed crown jewel, the financial services unit is the company’s minefield.
Ticking Time Bombs Abound at GE Capital
General Electric stands on shaky financial ground. But the company’s GE Capital financial services unit faces more risk. Recently, ratings agency Fitch downgraded both GE and GE Capital’s debt.
But while Fitch believes the parent company’s outlook is “stable,” the came can’t be said for GE Capital. The credit rating agency changed its rating outlook for this unit from “stable” to “negative.” This is mainly due to obvious weakness in aircraft leasing, this unit’s main business. Yet other issues could be ticking time bombs down the road.
I’m talking about the company’s long-term care insurance liabilities. In 2018, the parent company forked over $15 billion to cover these, as claims have been higher than what was priced into these policies. They could on the hook for billions more, as additional capital may be needed to cover these losses.
These aren’t the only big ticket liabilities for General Electric. Consider their pension liabilities, currently standing at more than $90 billion. The company may have frozen this plan years back, but with rock-bottom interest rates affecting funding, the company may have to put in billions more to meet these legacy obligations.
Don’t Bottom-Fish With GE Stock
General Electric shares may be back to fire sale prices, but don’t view this as an opportunity to make a contrarian bet. There are plenty of high-quality stocks out there that could rebound tremendously once current troubles fade away.
Granted, the company is doing its best to clean house and move the needle again. But with factors outside its control impacting the flagship Aviation unit, along with a minefield of risk within the Capital unit, this simply doesn’t make for a great opportunity.
If you own GE stock, sell into strength. But otherwise, avoid this once-great conglomerate, and focus on better contrarian buys.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. The power of being “first” gave Matt’s readers the chance to bank +2,438% in Stamps.com (STMP), +1,523% in Ulta Beauty (ULTA) and +1,044% in Tesla (TSLA), just to name a few. Click here to see what Matt has up his sleeve now. Matt does not directly own the aforementioned securities.
