Today marks a monumental moment for the markets. The DJIA has broken through some of the major key support levels of November 2008, and now the questions are mounting over whether the S&P and NASDAQ will hold those levels as well. But yesterday shares of General Electric Co. (NYSE: GE) briefly broke under $10.00. Today, the shares are solidly under $10.00 and guessing where a bottom may be is as useful as betting for or against the local weatherman’s forecast. The media and the market is trading G.E. as though it is a just like a troubled bank. With the speculation of major bank nationalizations coming, we wanted to see what the actual correlation was.
For starters, GE can’t hide the fact that 2009 has so far been a dud. Its shares are now off about 40%. Frankly, I can’t find another time period where a year has started off like this.
But the two banks where nationalization rumors are single-handedly running the bank stocks into mere “way out of the money call options” are Bank of America Corp. (NYSE: BAC) and Citigroup Inc. (NYSE: C). If you think G.E. looks bad on performance, these two banks are worse. Far worse. The BigCharts.com reading here shows it all. Citi shares are off over 60% in the same period, and B of A is off over 70%.
Citi sits around $2.00 today, and it closed 2008 out at $6.69; and B of A sits around $3.30 today, and it closed out 2008 at $14.08. GE closed out 2008 at $16.20.
Warren Buffett gave an endorsement to G.E. with his investment late last year. Buffett did not buy the common stock in the deal, but if you look in his full holdings he does still own a decent amount of G.E. common stock. He owns Bank of America too.
Bank of America and Citigroup are 100% financial stocks. GE is massively tied to financials because of its exposure to the sector. We cannot even fathom a guess as to what percentage that will be in the future. GE ended 2008 with $172 billion of Infrastructure equipment and service backlogs. Energy Infrastructure was 21.1% of its 2008 consolidated revenues, technology infrastructure was 25.4% of its 2008 consolidated revenues, NBC Universal was 9.3% of its 2008 consolidated revenues, and capital finance was 36.7% of its 2008 consolidated revenues.
The company has not yet cut its dividend. We are certain it will. And now the rumors are “gain” out that it is going to lose its Triple-A rating from Moody’s and/or S&P. If you look at G.E. stock, it is not at all acting like the ratings agencies really believe that it is a Triple-A rated security.
Anyone buying G.E. here has to just assume taht the stock you buy will not have the same dividend ahead and that its Triple-A status won’t be there. That doesn’t mean those are assured outcomes, but everything is based upon expectations rather than a snapshot. For that matter, any major industrial company’s guidance or earnings expectations for the full year may be guess work at best.
G.E. is not in the same boat as the banks. It does not seem likely that Uncle Sam could take control any second. But at $9.30, the “pricing-in” notion is beginning to seem like expectations might include everything except the Holy Hand Grenade of Antioch going off.
JON C. OGG
February 20, 2009
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At Any Cost: Jack Welch, General Electric, and the Pursuit of Profit by Thomas F. O'Boyle
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