Companies like General Electric Co. (NYSE:GEF) represent one aspect of the market that drives investors and analysts crazy. GE is what is known as a blue chip or highly reliable investment. Traditionally one could hardly do better than investing in a blue chip like GE.
Unfortunately, nothing is permanent including the financial position of blue chip companies. Over the past year GE stock has lost more than 50% of its value. Worse yet, many analysts believe the stock could fall even more. The question investors are asking is: Does this represent a warning to stay away or a buying opportunity?
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Deterioration Of Fundamentals
GE’s fundamentals, earnings and revenue estimates have been slashed by analysts. Recent projections suggest revenue will decline $115.53 billion in 2020 from $122.4 billion in 2018 a drop of almost 6% according to Ycharts.
All this suggest GE has a lot of work to do over the next few years to regain position and regain its position as a true blue chip company. None of this will be easy.
The Value View
As General Electric declines, value investors have been paying attention and attempting to determine if GE has a future as a value play or if things are going to get much, much worse. Value players are mindful of the words the Oracle of Omaha, Warren Buffett who advises investors to "be fearful when others are greedy and greedy when others are fearful."
If only it were that easy. After all, sometimes there a very good reason why “others” are fearful. GE’s stock price has been pummeled. Investor sentiment is discouraging – to say the least. Remaining objective is difficult. Optimism may be a bridge too far – at least for some.
General Electric is responsible for the lightbulb and jet engine. It survived both the dot-com crash and 2008 meltdown. Survivorship skills at GE are well-honed. The company has a well-insulated far-reaching product line that consists or turbines, engines, medical equipment and wind power solutions – in addition to the afore-mentioned light bulbs.
GE is involved in global markets and is a worldwide brand leader with significant name recognition. Previous CEO, Jeff Immelt, was replaced by John Flannery to turn the company around. Finally, the company has divested from unprofitable segments and has a significant liquidity position and long-term debt that has decreased recently.
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The Investment Question
For anyone considering GE as an investment analysts and experts suggest several things. First, plan to hold the stock for several years to allow turnaround to take place. Others suggest it might be smart to wait for further price drops to obtain a better margin of safety and maximize ROI.
The dividend yield is attractive at about 3 ¼%. That’s a decent level for income investors and for equity income mutual funds. Analysts suggest that the recent 50% dividend cut makes GE’s dividend more secure. The stock may be near its bottom. Some experts have pointed out that the recent deterioration following weeks of decline reflects shareholders giving up and throwing in the towel - a reliable sign of a near-bottom position.