General Electric -- Average Down or Bail?

7235 Views 17 Replies 9 Participants Last post by takingprofits, Jun 11, 2009

Jon Chevreau

Discussion Starter · Apr 19, 2009

I've been averaging down on G.E. for a year now, buying it after my advisor recommended it, somewhat prematurely!

I look at all stocks as long-term investments so am not greatly fussed by the drop in the stock price, although the dividend cut is more disturbing.

As I just twittered -- www.twitter.com/jonchevreau -- I just skimmed through a new book by David Maqee called Jeff Immelt and the New GE Way. It's a bit too "authorized" by GE to qualify as objective: pretty bullish and promotional. Perhaps readers of this forum can point out some of the drawbacks not in the book.

www.wealthyboomer.ca

1 - 18 of 18 Posts

Brad911

· #2 · Apr 19, 2009

I was a common shareholder for a number of years but after Christmas chose to instead invest in the fixed income (KVR) of GE to maintain the income I was receiving prior to the anticipated dividend cut.

At some point in the future I might switch back to the common, but with all the unknowns, disclosure by management suspect and common equity risk I just felt this was a better investment.

daveking

· #3 · Apr 21, 2009

I bought some GE at $8.24 last month. Planning to go long.

One of the original Dow Jones Industry Index company. Then again, so is GM.

moneygardener

· #4 · Apr 21, 2009

I am a holder of GE and bullish on it long term. You have to look forward past the financial malaise and see the strength of their other businesses in infrastructure, green energy, devloping markets, etc. GE is going to be a huge benefactor of the money that is being poured in as stimulus all over the world.

archanfel

· #5 · Apr 21, 2009

Bail, bail, bail.

If I have to time the market, which I don't, I would use the 50 SMA v.s. 200 SMA. It would mean lose out on the initial rally, especially in a falling off the cliff market like this, but it's more conservative. Right now, GE's 50 SMA just flattened out whereas it's 200 SMA is still falling. I'd say it got support at around $10 level, but I wouldn't get in until the 50 SMA passes the 200 SMA, probably around $15 range if the stock does not crash again.

Yeah, like I know anything about technical analysis.

CanadianCapitalist

· #6 · Apr 21, 2009

For what it's worth, here's the ValueLine report on GE:

ValueLine GE report

The ValueLine reports for the 30 Dow stocks are complimentary on their website:

ValueLine Investment Survey Dow 30

ethos1

· #7 · Apr 21, 2009

archanfel said:
Bail, bail, bail.

If I have to time the market, which I don't, I would use the 50 SMA v.s. 200 SMA. It would mean lose out on the initial rally, especially in a falling off the cliff market like this, but it's more conservative. Right now, GE's 50 SMA just flattened out whereas it's 200 SMA is still falling. I'd say it got support at around $10 level, but I wouldn't get in until the 50 SMA passes the 200 SMA, probably around $15 range if the stock does not crash again.

Yeah, like I know anything about technical analysis.

you & me both & agree $9.50 - $10.50 range

The RSI shows a correction is coming

Bail out

http://www.stockta.com/cgi-bin/analysis.pl?symb=GE&num1=2&cobrand=&mode=stock

takingprofits

· #8 · Apr 22, 2009

There are a few technical things acting as resistance to an increase right now. The stock could move sideways or up a wee bit in the next couple of days but after that will probably slide at least for a while - back to the 50 day moving average. If it breaks below that sell orders will be triggered and it will probably test the March lows and could go even lower.

You could always sell if it closes below the 50 day moving average to save some losses and buy it back when it bottoms if you love the stock.

FinancialJungle

· #9 · Apr 22, 2009

Luckily I didn't chase GE to the bottom, although I wish I gambled in early March when it was trading around $6-$7.

I did follow Brad's lead to buy a GE bond (KVR.) Thinking out loud, now may be a good time to flip it in favour of junk bond ETF, JNK, for higher yield and diversification.

Brad911

· #10 · Apr 22, 2009

FinancialJungle said:
I did follow Brad's lead to buy a GE bond (KVR.) Thinking out loud, now may be a good time to flip it in favour of junk bond ETF, JNK, for higher yield and diversification.

JNK is a good alternative for diversification and yield, but the credit quality of the holdings is still no where near that of GE at AA since KVR carries the identical credit rating. I've made about 35% on KVR since my purchase and the yield on cost is more than enough to keep me in it for a while yet while GE sorts out this mess. If/when a significant change in management occurs I'll be more than happy to make the switch.

Shareholders can honestly say that the current group of managers has done a very poor job of building upon GE's strengths (as MG pointed out in infrastructure) than staying the course in a very high risk financial division.

moneygardener

· #11 · Apr 22, 2009

It is easy to fault GE for getting caught up in the credit meltdown but when the credit crisis is a distant memory the strongest players should benefit by grabbing market share and earning trust by surviving very hard times.

Many of the trends that are emerging in the world, either due to the credit crunch, globalization, or environmentalism will benefit GE in spades as times marches on. Stimulus money, China's growth, and the greening of energy production being three.

FinancialJungle

· #12 · Apr 22, 2009 (Edited)

Brad911 said:
JNK is a good alternative for diversification and yield, but the credit quality of the holdings is still no where near that of GE at AA since KVR carries the identical credit rating. I've made about 35% on KVR since my purchase and the yield on cost is more than enough to keep me in it for a while yet while GE sorts out this mess. If/when a significant change in management occurs I'll be more than happy to make the switch.

I'll probably end up holding KVR for a little longer, although it is getting up there. Interestingly, for comparison, US investment grade bond ETF (LQD) is yielding 6.5%; only 1% less than KVR, not too much to give up for significant diversification.

KVR has the better credit rating, but JNK has the diversification. The question becomes which one is worth more. I don't a definitive answer, but assuming they're equal, the yield becomes the next logical tie breaker, and JNK has at least double the yield.

Next we must consider the currency risk for Canadian investors. Since US/Cdn exchange rate is so volatile, I ignore any US bond that yields below ~7%. Anything less than 7% can be wiped out at the end of the year easily.

FinancialJungle

· #13 · Apr 22, 2009

moneygardener said:
It is easy to fault GE for getting caught up in the credit meltdown but when the credit crisis is a distant memory the strongest players should benefit by grabbing market share and earning trust by surviving very hard times.

Many of the trends that are emerging in the world, either due to the credit crunch, globalization, or environmentalism will benefit GE in spades as times marches on. Stimulus money, China's growth, and the greening of energy production being three.

Truthfully, I've been looking for reasons to own GE. It's a high-beta stock, so it'll ride the wave higher than the general market rallies. One thing I can't get over is that they halted their share buyback program when the GE fell below $30/share. In fact, looking at shares outstanding, it appears they're issuing new shares at these rock-bottom prices, thus diluting existing share holders.

No matter how attractive their infrastructure story is, I just can't bring myself into buying a management that buys high sells low.

moneygardener

· #14 · Apr 22, 2009

I guess it's a symptom of the cash crunch. I'm sure if you really dug into it you would find this trend with several firms under cash pressure.

Brad911

· #15 · Apr 22, 2009

FinancialJungle said:
KVR has the better credit rating, but JNK has the diversification.

Just looking over the holdings for JNK I wouldn't be in a race to let go of KVR (or my other CorTS') to move into that name based on many of the companies within the ETF. I'd be more willing to throw it into a high risk equity portfolio than maintain it as part of my fixed income (which by definition is where you want to protect your principal).

With 107 securities in the ETF you're certainly not exposed to any one failure or downgrade, but I can't figure out if having a heavy industrial component (over 70%) is good in this recessionary environment. Sure it's not full of toxic financials, but a lot of industrials are having a tough time accessing equity for anything less than 15% for their cost of capital. Not a whole lot of businesses can support that cost.

As I've heard in poker, "too rich for my blood"

, but something I'll watch as a market indicator of how the bond market is behaving.

(Good to see you around again JG)

FinancialJungle

· #16 · Apr 23, 2009

moneygardener said:
I guess it's a symptom of the cash crunch. I'm sure if you really dug into it you would find this trend with several firms under cash pressure.

No digging is necessary. We all know GE isn't alone in the cash crunch boat

But the soothing part is that there are other boats enjoying a little piece of paradise in this rough sea. One stock I'm considering is integrated giant, Exxon Mobile. It's maintained a near debt-free balance sheet for the longest time, and has eased its shares outstanding from 7.0B to 5.0B over the past 9 years. In fact, with prices low, XOM is accelerating their buyback program devouring $8.85B of its market cap in the fourth quarter alone; how many companies can afford to do that?

Exxon's dividend yield is only 2.5%, but for every dividend dollar dishes out, Exxon is buying back more than 4 bucks worth of shares. So, the total yield (dividend + buyback) is well over 12%.

I don't know where XOM will be in 5 years, but the math is simple. Stock is down a third from a year ago, but as long as the business keeps on generating an enormous amount of free cashflow and buying back 7-10% of shares with the cash, you'll get your working capital no matter what the market price is.

GE and XOM have very similar PE ratios, both trailing and forward. Wouldn't XOM be the better choise? I know they're in different industries, and the comparison would be apple-to-orange, but hey, let's compare apple-to-orange.

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FinancialJungle

· #17 · Apr 23, 2009

Brad911 said:
With 107 securities in the ETF you're certainly not exposed to any one failure or downgrade, but I can't figure out if having a heavy industrial component (over 70%) is good in this recessionary environment. Sure it's not full of toxic financials, but a lot of industrials are having a tough time accessing equity for anything less than 15% for their cost of capital. Not a whole lot of businesses can support that cost.

As I've heard in poker, "too rich for my blood" , but something I'll watch as a market indicator of how the bond market is behaving.

(Good to see you around again JG)

The non-systematic risk vs rating risk comparison is a red-herring. By far, their single biggest component of risk is the US currency, which is just waiting to burst. Hyperthetically, would you consider US treasury at 6%?

JNK has always been a risky ETF, but we're in a sweet spot in terms of valuation and where we're in the economic cycle. I don't pretend the 17% yield is money in the bank, but the first 10% should be safe and the last 7% is bonus. I'm not betting my farm though.

It's good to chat investments here. I like this forum much better than CB. Don't know the history here, but kudo to CanadianCapitalist for a fine job running the site.

takingprofits

· #18 · Jun 11, 2009

Just thought I would revive this old thread with a vote of confidence for GE - I bought shares today

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