General Electric Company Stock Is Worth the Risk


JAMES BRUMLEY, InvestorPlace

In mid-December, I made a point of saying General Electric Company (NYSE:GE) was a buy, not because the company was facing an unexpectedly bright future, but because the beat-down of GE stock had become excessive.

If nothing else, relatively new CEO John Flannery was making some tough-but-good decisions that would put the iconic company back on a bullish track that few were expecting it to find anytime soon.

Since then, the company disclosed that its insurance division of its remaining financial arm will be booking a $6.2 billion charge stemming from what was, ultimately, a mathematical mistake. In the meantime, the SEC has decided that matter is worth a closer look. General Electric stock is down about 9% since my call in December, with the prospect of being removed from the Dow Jones Industrial Average weighing on shares.

Nevertheless, I’m sticking with my original thesis. If you can stomach the risk and deal with the inevitable volatility, this is a name worthy of a little bit of your speculative money.

The Game Is Afoot
I said it before, but it merits repeating now: if you’re looking for a strong fundamental argument to support my bullish case on GE stock, don’t hold your breath. Sales are barely going to grow this fiscal year or next and earnings are stagnant as well. The company’s got problems galore.

That superficial picture didn’t improve with its recently reported fourth quarter numbers either. Stifel Nicolaus analyst Robert McCarthy called them “messy, underwhelming” results and nobody argued his assessment.

Problem is, for better or worse, that’s not how the modern market works.

Reality check: Stocks don’t trade based on trailing fundamentals. They don’t even always trade on forward-looking forecasts. Mostly, they trade based on what investors expect other investors to feel about a stock at X date in the future.

It certainly makes things interesting and, often, tough. If you know those are the unspoken rules of the game, though (and right now, for GE stock, they are), then you know the worst-case scenario is already priced in. You won’t get the bullish green light from actual results until well after the fact.

I take some comfort in knowing that Gamco Investors’ Mario Gabelli sees the same outcome that I do on the horizon. He recently added $40 million worth of GE stock to an existing position, suggesting shares could be trading in the $20’s again within a couple of years. Truth be told, though, that’s not the only — or prevailing — reason I’m optimistic, despite the backdrop of pessimism. I’m also bullish because (in all seriousness) the market absolutely hates GE stock here.

The specifics: On a scale of 1 to 5 (where 5 is a “sell” and 1 is a “strong buy”), General Electric holds an average rating of 2.7, which is just a tad better than a “hold”. Knowing the implicit bullish bias analysts tend to harbor, however, that’s the professionals’ unspoken equivalent to a “steer clear” recommendation. It’s compelling, because effectively, there’s not a lot more room for downgrade-driven downside.

3 thoughts on “General Electric Company Stock Is Worth the Risk”

  1. I have to agree. all my biggest gains have been on the back of GE. However their home appliance division is still stuck in the 70’s when it was okay to build stuff that breaks in a year. So now do we head fwd and note all the reasons it is s good buy under $19 ?

    Like

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s