Friday, July 10, 2009

General Electric: What Happened?

This is a five year chart of General Electric, once the darling of the financial world. Jack Welch was as close to a God on Wall Street as ever there was one.

But take a look at the chart now.

GE has been dead money for at least five years---going nowhere and then down fast.

A friend of mine recently asked me to take a look at GE prior to making an investment in the stock. I did so with an open mind. GE is not a company I followed or owned. For the record, I have not owned a share of GE stock in many years. Not my type of company. Too large. Conglomerates are too tough to value.

Anyway, I was really shocked by the lack of transparency on most of the accounting issues GE uses to report earnings. "Black Box" accounting should really be a trend of the past. How can you value a company when you really don't know how it make money? If you think I'm the only analyst who feels this way about GE, think again. Read what these analysts have to say about the stock they cover full time.

What I learned about GE convinced both me and my friend to go short the stock. So far we've done well, nothing to write home about, but still the trend is our friend and we are buying our new pal drinks with the profits.

I read this great article from today and it pretty much confirms much of what I have been thinking about GE. Too big, too many capital issues, too many markets that are stagnant or in decline. Too much uncertainty.

At a P/E of 7 GE looks cheap relative to the market. Maybe it is. Going short GE means facing off against Warren Buffett who is long the stock via his convertible bond holdings. In the short run, however, I can't see anywhere else for this company to go but down. I'm keeping a close eye on the tape and will close out any short the moment I see a new trend forming but in the absense of any good news about the stock I can't recommend it.

And this is sad. GE is an American institution and I would like to own a piece of one. Maybe I will when I can clearly see a bottom, both in the stock price and how it reports earnings.

Robert J. Abalos, Esq.