GE – Time to Buy?

I don’t own GE directly but I have been fascinated watching GE’s downfall. My mother worked at GE back in the day and I grew up near Schenectady, so I have some connection to GE. GE’s recent history and troubles were well-reported in this article in the Wall Street Journal on December 14, 2018.

Time To Buy?

As I write this on 1/2/19, GE is trading at $8.10, up from a low of $6.66 in late December. That means some bottom-fishers are buying GE. But is it really a great buying opportunity? It is certainly an example of “catching a falling knife”, which is not a recommended strategy.

If you buy GE now, you do so because you believe in the new CEO, Larry Culp, and his ability to be a turnaround wizard. Because Culp turned around Danaher, he can turn around GE. However, GE is a much different animal than was Danaher – much larger, more bureaucratic, more internal vested interests. Moreover, it appears that GE’s power division, in particular, has issues that will take a long time to resolve, even with Culp in control. Also, you think at $8.10 there is little downside? What if it goes to $4? That’s a 50% drop. There is still plenty of downside, even at $8.10. So, as you might surmise, I don’t see GE as a great buying opportunity, even at $8.10, because there are so many huge obstacles to overcome even if they do have the right skipper at the helm.

Ackowledgement

On the other hand, it appears that GE’s management is at least in the Acknowledgement phase – they know they have a big problem and they are seeking to fix it. That’s not always true with companies that need fixing – some companies deny there is a hole in the boat even as the boat is sinking. GE over the years has hired some of the best and brightest people. That doesn’t mean they all know what they should do now but it does mean they are able to spot a problem when there is one. If GE as a whole is on board with fixing their own problem, that bodes well for the future of the company. Culp may or may not be the right guy to right the ship but, as an outsider not having grown up within GE, he is the right type of leader for its current situation.

IMO

So, if you do want to jump in, feel free, but don’t go all-in just yet. I think the argument to wait and see is stronger than the argument to buy GE now, but there are good reasons to buy now, especially if it is your “fun” money. I am skeptical that Culp will be the savior because of all of the entrenched interests at GE, but if those interests truly want to change then, with their help, Culp can work. Culp can’t do it on his own – he needs total cooperation from within. A difficult but not impossible task.

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