What Happened to General Electric?

I want to take a moment to discuss General Electric. This is a bit off topic from my usual discussions and probably a bit more on the complex side (for the usual audience reading this), but General Electric holds a special place in my portfolio since it was the first stock I ever bought.

General Electric was founded in 1889 as Edison’s General Electric Corp. GE is also unique because it was one of the original members of the Dow Jones Industrial Index.

So what happened to the company that was earned $122 Billion for fiscal year 2017? Well, they have a lot of divisions; GE Power, GE Capital, GE Aviation, GE Home and Business, GE Financial, and GE Technology, and GE Healthcare. Honestly, that’s a lot of businesses across 313,000 Employees and $122 Billion in revenue.

I see bright futures ahead for the once mighty giant with a quote from John Flannery in Fortune Magazine that the company may be more valuable in pieces. I believe a spinoff would spell a very bright future for General Electric since many of it’s divisions have nothing to do with each other, such as Healthcare, Aviation, and Capital. Jeff Immelt, now former CEO, had a long trend of buying what seemed to be random, but profitable businesses for GE. However, as the world is now seeing, profitability, will not yield permanence. It’s too much too manage and so in August of 2017, Immelt decided to step down and Have John Flannery, CEO of GE Healthcare, take over all of GE.

I became concerned when the board of directors cut the dividend. This is often a sign of trouble ahead for a company as the directors and insiders do not feel comfortable about the long term prospects of paying their debts. Usually the first, and easiest expense to cut is the dividend, which is why dividend cutting is giant red flag.

If Flannery is serious about his intention to divest assets out of GE; I believe GE will have a very bright future. If GE becomes greedy and wants to hold onto all of these assets; then I do not see GE getting better any time soon. GE’s debt to equity ratio is currently hovering around 2; and has been steadily climbing over the years. GE needs to put a stop to this or it will end up like Toys R Us. GE needs to find more revenue, or sell off assets that are not supporting the relative debt.

I will be waiting patiently for this announcement from Flannery, but for now, I’m holding onto the stock, fully prepared for it to either come back from it’s $7 price back to $20 where it spent many years (or an appropriate valuation based on the divested assets), or for it to continue flopping into bankruptcy. Either way, I am optimistic on GE. I will admit that their $22 Billion loss in Q4 is a bit unnerving, but this is all mental gymnastics as I believe they will return to profitability and not enter penny stock territory.

However, there is still one great mystery afoot. All signs are currently pointing to another 2008 style financial collapse. Is the current state of General Electric just a foreshadowing for what awaits us for 2019 and beyond? I’m thinking possibly, but timing the markets is nearly impossible so we will need to wait and see.

What is your position on GE?

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