General Electric (Symbol-GE)

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jonathan
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Post by jonathan »

I was just reading the notes to the 08 financials for GE and came across this little gem (small print, to the small print note 12 p.74)

Approx 26% of this portfolio (60 B of receivable assets -non-US residential mortgages) is comprised of loans with introductory, below market rates ...with high loan to value ratios...whose terms permitted interest only payments...

The total for their financing receivables is 378 B with a 5 B allowance for losses (1.3%). I'm a simple guy, but this sounds on the low side!

To put this in perspective they earned $17 B last year and the current value of the company is about 100B (10 B shs o/s x $10.00)
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Mike Schimek
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Post by Mike Schimek »

Well the fed just announced that they are going to buy tons of mortgages and start printing money. This might be a strong positive for financials and companies with exposure to mortgage debt.
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Post by jonathan »

Including "non-US" residential mortgages?
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Post by WishingWealth »

Immelt will be on Charlie Rose tonight.

No doubt he's smart; and I'm sure the good salesman that he is will tell us about all the good things at GE.
If only the markets would listen.

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Post by zaman »

I wonder how history will eventually view Jack and his expansion into the credit markets. I think Jeff was left with far more risk on the table than Jack inherited.
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Post by Michael D »

Risk, yes. What about the debt? It is the only thing keeping me from a full position (I had a full position when it was $32).

The debt, and a plan to address it is what I want to see.

Did Buffet (I may be corrected) say that GE is the single most important institution in industry? Look at the press, the dept and breadth of this company is amazing. I ignore the entertainment lines, just look at the industrials. The technologies, the momentum is staggering, but what do you expect with 300,000 employees? At least 1 or 2 teams get it right...DAILY.

What about a breakup? Either that or divest the entertainment units. I am a firm believer that GE financial is a great vertical function (finance what they sell), but they need a Canadian bank manager to head the unit :wink:
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Post by JaydoubleU »

I also had a full position, and paid way too much, as hindsight shows.

But of all the mistakes made in the past two years, losses taken, confidence shaken, GE is one I continue to hold because I believe in its infrastructure businesses. The potential in water and energy infrastructure is incredible.

Alas, it will take time. I wouldn't be surprised to see some investors look back in 5 or 10 years time and wonder why they didn't scoop up 1000 shares at today's prices.
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Post by Michael D »

I paid too much also....3 times in a row (down, down, down).

I'm waiting for $10 again. 4% Yield (if the dividend holds) is fine for me.
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Post by Sensei »

I'll go along with MichaelD on the 4% yield as being a suitable buy in point under certain circumstances. I'll also go along with J and say that the hardware end of the business holds some potential. And, I'll go along with the consensus analyst recommendation of 'Hold' if you are holding.

However, I sold out at a substantial loss after the dividend cut because I do not have room for negligible or doubtful dividend payers in my port. I just wouldn't feel comfortable with it. The proceeds have been put to good use elsewhere. For new buyers, I find little to love about GE in its present state. They need to make some big changes (like amputating a good part of the financial 'arm') before they make it back even to my watchlist.
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Post by Michael D »

The game has changed for GE investors. It is now a growth stock. It is not a dividend growth/value stock until the debt, cash-flow, and dividend strategy gets worked out.
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Post by JaydoubleU »

Any thoughts about GE selling NBC to Comcast? It looks as though the deal is going through, though no word yet from Vivendi.

http://www.reuters.com/article/newsOne/ ... 1F20091109

Just wondering how we long-suffering GE shareholders might benefit...
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Post by Michael D »

Please let them unload NBC. Look at the 2.5% pop the stock gets just from a press release on 'agreed valuation'. Yeesh.

I had my first MRI yesterday. Big GE machine. Cool.
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Re: General Electric (Symbol-GE)

Post by jimmyjeblonski »

GE Capital will be neutral to earnings in 2010 according the the company. It appears that they have done a good job of neutralizing that particular threat. I'm holding it as I think they will benfit from the ongoing infrastructure build-out in emerging markets and the future allocation to green technologies.
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Post by vince2 »

Michael D wrote: I had my first MRI yesterday. Big GE machine. Cool.
They generally make good and reliable xray and MR systems. If they have a problem (from my viewpoint) it is that they pride themselves on their ability to upgrade older systems - and whilst they do it successfully, the upgrade is often very similar to additions to a house, it works after a fashion but looks bloody awful and often clumsy compromises have been made to get it to work. What still makes them a formidable competitor, is their high level of after sales service.
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Re: General Electric (Symbol-GE)

Post by WishingWealth »

In the 'Money for Nothing' department.
At Market Watch: http://www.marketwatch.com/story/story/ ... A17295FCF8
GE has been an investor disaster under Jeff Immelt
Commentary: CEO spends $200,000 on jets, $36,000 for car lease last year
When things go well, the top dogs of major companies rack up hundreds of millions of dollars, even billions, on their stock allotments and options.

It's always justified on the grounds that they've created lots of shareholder value. But what happens when things go badly?
For one example, take a look at General Electric Co. (NYSE:GE) , one of America's biggest and most important companies. It just revealed its latest annual glimpse inside the executive swag bag.

By any measure of shareholder value, GE has been a disaster under Jeffrey Immelt. Investors haven't made a nickel since he took the helm as chairman nine years ago. In fact, they've lost tens of billions of dollars.

The stock, which was $40 and change when Immelt took over, has collapsed to around $16. Even if you include dividends, investors are still down about 40%. In real post-inflation terms, stockholders have lost about half their money.
So it may come as a shock to discover that during that same period, the 54-year old chairman and chief executive has racked up around $90 million in salary, cash and pension benefits.
...
He does talk a good talk though; the most excellent UCS around; he gets me every time.

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Re: General Electric (Symbol-GE)

Post by adrian2 »

The Insourcing Boom
The Atlantic wrote:For much of the past decade, General Electric’s storied Appliance Park, in Louisville, Kentucky, appeared less like a monument to American manufacturing prowess than a memorial to it.

The very scale of the place seemed to underscore its irrelevance. Six factory buildings, each one the size of a large suburban shopping mall, line up neatly in a row. The parking lot in front of them measures a mile long and has its own traffic lights, built to control the chaos that once accompanied shift change. But in 2011, Appliance Park employed not even a tenth of the people it did in its heyday. The vast majority of the lot’s spaces were empty; the traffic lights looked forlorn.

[...]

To get ready to make the GeoSpring at Appliance Park, in January 2010 GE set up a space on the factory floor of Building 2 to design the new assembly line. No products had been manufactured in Building 2 since 1998. An old GE range assembly line still stood there; after a feud with union workers, that line had been shut down so abruptly that the GeoSpring team found finished oven doors still hanging from conveyors 30 feet overhead. The GeoSpring project had a more collegial tone. The “big room” had design engineers assigned to it, but also manufacturing engineers, line workers, staff from marketing and sales—no management-labor friction, just a group of people with different perspectives, tackling a crucial problem.

“We got the water heater into the room, and the first thing [the group] said to us was ‘This is just a mess,’ ” Nolan recalls. Not the product, but the design. “In terms of manufacturability, it was terrible.”

The GeoSpring suffered from an advanced-technology version of “IKEA Syndrome.” It was so hard to assemble that no one in the big room wanted to make it. Instead they redesigned it. The team eliminated 1 out of every 5 parts. It cut the cost of the materials by 25 percent. It eliminated the tangle of tubing that couldn’t be easily welded. By considering the workers who would have to put the water heater together—in fact, by having those workers right at the table, looking at the design as it was drawn—the team cut the work hours necessary to assemble the water heater from 10 hours in China to two hours in Louisville.

In the end, says Nolan, not one part was the same.

So a funny thing happened to the GeoSpring on the way from the cheap Chinese factory to the expensive Kentucky factory: The material cost went down. The labor required to make it went down. The quality went up. Even the energy efficiency went up.

GE wasn’t just able to hold the retail sticker to the “China price.” It beat that price by nearly 20 percent. The China-made GeoSpring retailed for $1,599. The Louisville-made GeoSpring retails for $1,299.

Time-to-market has also improved, greatly. It used to take five weeks to get the GeoSpring water heaters from the factory to U.S. retailers—four weeks on the boat from China and one week dockside to clear customs. Today, the water heaters—and the dishwashers and refrigerators—move straight from the manufacturing buildings to Appliance Park’s warehouse out back, from which they can be delivered to Lowe’s and Home Depot. Total time from factory to warehouse: 30 minutes.
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Re: General Electric (Symbol-GE)

Post by pmj »

By considering the workers who would have to put the water heater together—in fact, by having those workers right at the table, looking at the design as it was drawn—the team cut the work hours necessary to assemble the water heater from 10 hours in China to two hours in Louisville.
Disconnection between designers and tradesmen/workers is a problem in many fields. It's not uncommon in construction to find a "perfect" drawing of something that can't be built....
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Re: General Electric (Symbol-GE)

Post by Shine »

The “big room” had design engineers assigned to it, but also manufacturing engineers, line workers, staff from marketing and sales—no management-labor friction, just a group of people with different perspectives, tackling a crucial problem.
Good article - and encouraging in outlook. Thanks for posting.
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Re: What did you buy? What might you buy? (2014)

Post by parvus »

Sensei wrote:As the only entrant in the so-called industrial group, I am aiming to get GE into my A-list stock group. These are core stocks in which I have the largest positions and include AT&T, ADP, Chevron, Altria, PM, GSK, RDS.B, HBC, HCN, O, INTC, JNJ and the like.
I'm not sure I would count GE as an industrial stock, given GE Capital, which accounts for 47% of its profits.

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Re: What did you buy? What might you buy? (2014)

Post by Sensei »

Hi,

Good point and thanks for bringing it up. I think when I and other investors buy something we should know what we are buying.

GE is most often classified as as a diversified industrial company and member of the Dow Industrial Index as well as the Dow Composite Index. TDW says 'Industrial Conglomerate', along with S&P Capital IQ, and Thomson Reuters. Argus uses a similar designation. The company is currently organized into eight segments: Power & Water, Oil & Gas, Energy Management, Aviation, Healthcare, Transportation, Home & Business Solutions and GE Capital. Therefore 6/8 are clearly industrial in nature the majority of GE's Q4 earnings came from these segments.

Parv, you wrote that GE Capital contributes 47% to GE's profit. In Q4 it was also a significant contributor, but significantly less than that. Of note in the Q4 earnings call, financial revenues continue to decline as a proportion overall sales, and industrial revenues were up. In any case, it isn't really about the numbers. It is about the future and where GE is going. As I said up thread, GE has fought hard to get GE Capital on track (I used the expression 'back in its box). I don't think anyone at GE would say or wants to say that GE as a whole can be defined as a financial institution. GE Capital is back to being the tail of GE, not the whole dog. You may also have remarked the Immelt used but one sentence to refer to GE Capital in the opening states of the Q4 Earnings Call Transcript.

We must remember that GE Capital really got out of hand during the sub-prime mortgage mess period and fundamentally sucked the company down to its current period of low self-esteem. As it was, Immelt was faced with cutting the dividend or keeping GE's AAA credit rating. He chose the latter much to my annoyance and many other investors, but who knows maybe it was the right call.

The simple fact of the matter is that GE has had the cash to lend, and GE Capital performs that task. If they can increase profits in this way, you won't get any argument from me, as long as GE itself sticks to their core competence which is making things.
Cheers

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Re: What did you buy? What might you buy? (2014)

Post by Mike Schimek »

I added a few shares to GE,
Not to poo poo on your pick, but I looked at GE, here's some of the negatives;

* Q3 year over year sales declined
* Q3 year over year net income declined
* They raised the dividend while their income is declining. Duh?
* Using their last quarter's earnings as a run rate, at 3.19 bil = 12.76 bil/year, on a market cap of 253 bil, that works out to a P/E of 20 (or earnings yield of 5%).

Normally if you are ready to pay the heady price of a P/E of 20 for a company, you would want a company who's earnings are growing very rapidly. Not a company with flat or worse, declining earnings.

* Return on Equity: I pay a lot more attention to this metric now, it indicates how much money a company is making with the money invested in it. G/E's equity is 122 bil. They are making 12.76 bil. This works out to a ROE of just 10-11%. That's pretty crappy. All our Canadian banks have ROEs north of 15%, with most near the 20% range, the average is probably around 18%. This means that GE makes 10-11% on the money it reinvests while our banks make 18%. Needless to say, as time passes, the Canadian bank stocks will rise in price much more rapidly than GE will.
* Further to the ROE above, GE utilizes a MOUNTAIN of debt to be able to achieve that ROE. This means that if we backed out their debt, to calculate how much they would make on their operations without the requirement of debt, their ROE would be, well, pathetic.
* Further to ROE above: A high ROE indicates a company has good profitability and good margins (in general, you also have to look at leverage, etc.). A low ROE indicates they don't make much money in their business. At 10-11% ROE, plus the requirement to use loads of debt to achieve this, I think GE's business is crap.

GE's business: GE is a jack of all trades, master of none. When taking into consideration the low ROE, it might be more appropriate to call them a joker of all trades. Or jester of all trades, because they certainly must suck at all these things they are doing if they can barely make any money off them.

G/E's tax rate: is low because of all these buddy buddy deals they do in washington. If that should change at some point, their P/E goes from 20 to a higher number. They probably get these tax breaks from washington in exchange for engaging and investing in dumb green projects that make no money, or some such boondoggle.

G/E's interest expense: is almost as high as its net profit. If financial markets should become volatile, their profitability could disintegrate. Or they could go bankrupt, crushed by the mountain of debt.

Finecon has a good idea (IMO); he says he's looking for stocks with low P/E, low P/B and high ROE. That's the best of all worlds, IMO.
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Re: What did you buy? What might you buy? (2014)

Post by Sensei »

Hi,

Why do I feel my pick has been poo pooed on, then?? :wink:

Anyway, many of your metrics are correct, Mike, but it is now after Q4. Earnings met analysts expectations in the Q4 report. The P/E is not 20 now and not when I bought it. It's 15 to 18x depending on where you look and consistent with other companies in its sector. ROE is 12.7% as of Q4. It could be better, but based on the Q4 report, strong business orders and a huge backlog will push that a bit higher in the coming year assuming the US and world economies are on track to recover. (I think they are.) Debt is high and I'll grant you that, but the ratings agencies seems to think it is manageable. Moody's says A1 and S&P says GE; AA+/Stable/A-1+. Those are good enough for me.

Mike, you've been right a couple of times in the past about my picks. Still based on what you wrote, I think we will always be looking for different kinds of stocks. I look at the dividend and the main reason I'll stay with GE and perhaps even add to it is because I think the current dividend is very sustainable at around 50% of earnings and will grow in the future. A capital gain would be nice, and I haven't seen any target prices less than 30, but my reason for buying stocks is only rarely with the aim of selling them unless there is a very good reason. I'm not convinced there is one now. Quite the opposite, I think. Finally, it's a business for me, not a piece paper to be traded in and out of.
Cheers

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Re: General Electric (Symbol-GE)

Post by Peculiar_Investor »

An interesting read for those following or holding GE, or perhaps anyone else with holdings in large conglomerates.
How GE Went From American Icon to Astonishing Mess - Bloomberg
Bloomberg article wrote:For most of its 126-year history, GE has exemplified the fecundity and might of corporate capitalism. It manufactured consumer products and industrial machinery, powered commercial airliners and nuclear submarines, produced radar altimeters and romantic comedies. It won Nobel Prizes and helped win world wars. And it did it all lucratively, rewarding investors through recessions, technological disruption, and the late 20th century collapse of American manufacturing.

That long, proud run may have come to an end. It happened, as Ernest Hemingway wrote of going bankrupt, “gradually and then suddenly.” GE hasn’t inspired awe for some time now: The company had to be bailed out in 2008 by the federal government and Warren Buffett, and across the 16-year tenure of recently departed Chief Executive Officer Jeffrey Immelt its stock was the worst performer in the Dow Jones industrial average.

The past year, however, has seen GE enter new territory. Since Donald Trump’s election in November 2016, during a stock market boom in which the Dow is up 41 percent, GE has lost 46 percent of its value, or $120 billion.
Large conglomerates tend to be huge black boxes and I for one cannot fathom how someone can properly run and operate such a vast enterprise. The timing of GE's problems is quite interesting.
Bloomberg article wrote:What’s additionally baffling about GE’s difficulties is that there’s no surrounding global financial crisis, no chorus of sober-minded people fearing for the future of capitalism itself. Rather, the company is flailing while the world’s major economies are all robustly growing. It’s the exact sort of moment when GE’s global scale should be an advantage. “It’s like their sails are all torn when they’ve got the perfect wind,” Heymann says.
As I said, a worthwhile and interesting read.
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Re: General Electric (Symbol-GE)

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Peculiar_Investor wrote: 01 Feb 2018 09:39 An interesting read for those following or holding GE, or perhaps anyone else with holdings in large conglomerates.How GE Went From American Icon to Astonishing Mess - Bloomberg
The above smells of blood on the streets, so the contrarian in me wants to buy it, Rip van Winkle it for a few years.
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Re: General Electric (Symbol-GE)

Post by Peculiar_Investor »

adrian2 wrote: 01 Feb 2018 10:45 The above smells of blood on the streets
Or a falling knife. Be careful out there.

Far too many moving parts for me to even attempt to understand and evaluate. This is a widely followed company, a bell weather, yet no-one really knows what is going on and where this one will end up. I'll pass.
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