The Salty Economist

Things I Should Have Learned in High School
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I Hate General Electric

The stock that is.

I understand why people are enamored with GE's dividend of around 3.3%.  I like dividends too.

But let me show you a picture:

This Yahoo chart compares GE against United Technologies & Dow Chemical since 2000.  I bought GE in 2006 for around $35/share.  As everyone knows the stock collapsed in 2008/9 during the great recession.  While others have clawed there way back, GE wanders in the desert in the mid 20's.  That really sucks.  Did I mention that I hate GE?

The reason I show Dow is that, I also bought it in mid-2005 for around $40/Share.  DOW then proceeded to overpay for Rohm & Haas in the summer of 2008 and their stock also collapsed in 2008/9.  But, I have held on to them.  They have finally recovered and I am now in the black on the stock price itself, plus I have a bunch of extra shares from reinvested dividends.  I am not saying this has been a great investment, but it is the last of my stocks to have finally recovered from the 2008/9 debacle.

I also own UTX and have made a good deal of money on it.  I show it here because it is often trotted out as a "comparable" to GE.  Really???

Since 2000, UTX is up 250% and GE is down 50%.  I mean, its not like UTX is some unknown tech company.  Just a plain old fashioned industrial.  Enough said.

Where did GE's earnings go?

GE has not recovered because it has lost 50% of its income.

Check this out:

This shows is a clip from S&P's investment report.  GE's net income peaked at $22.5 billion in 2007.  But in, 2004, 05, & 06 net income was $16.6 billion, $18.3 billion & $20.7 billion, respectively.  That is real money.  In 2013, GE's operating income was $15.2 billion.  That is a drop of $7.3 billion from 2007 -- a drop of 32%.  That is just staggering.

I am sorry, GE may be a great company with great management and a great CEO, but this is embarrassing.

Here is the make up of GE segment profits from 2004-2008.  In 2007, GE Capital had a segment profit of $12.2; the rest of GE had a combined segment profit of $16.9 billion.

Here are the segment earning for 2009-2013.  In 2013, GE Capital had a segment profit of $8.3; the rest of GE had a combined segment profit of $16.2 billion.  Sinc 2007, GE Capital's segment profit dropped by $3.9 billion and the rest of GE was basically flat (a small drop of 0.7 billion).

The big drop in GE's net income is largely from GE Capital.  GE Capital used to be the crown jewel of GE and generated a huge profit.  Now it is the bastard child and GE wants nothing to do with it.  So, their strategy now is just to drive it into the ground.

If they no longer think the GE Capital fits in with GE's traditional mold, they should spin it off and let someone who has a passion for the business drive it forward.  Don't just let it rot on the vine.

So now we have a bunch of pundits telling me I should buy GE because of its dividend yield of 3.3%. Praytell where do I find the confidence in the management that will bring anything but tears.

And now comes along the Alstom bid.  Ughh.

NO SALE!

Print | posted on Sunday, June 1, 2014 9:53 AM |

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