GE and the myth of "safe blue-chip stocks"

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.
Valuethinker
Posts: 33176
Joined: Fri May 11, 2007 11:07 am

Re: GE and the myth of "safe blue-chip stocks"

Post by Valuethinker » Tue Nov 14, 2017 5:07 pm

nisiprius wrote:
Tue Nov 14, 2017 3:47 pm
Jack FFR1846 wrote:
Tue Nov 14, 2017 3:42 pm
...The price of GE is the lowest since the depths of the financial crisis of 2009. To her, this is a golden opportunity...
I wonder if there are any shares of Enron still extent? Just think how low the prices of Enron is. Perhaps there are some Enron employees that still have printed stock certificates tucked away in a drawer, that would still be legitimate of Enron ever bounces back.
The printed business school cases of the utility of the future and world's most admired company are worth real money. Because they were withdrawn from circulation by copyright holders. Ditto the McKinsey PowerPoints.

The legal entity went bust so share certificates are probably only collectible value.

TonyDAntonio
Posts: 314
Joined: Thu Mar 03, 2016 8:32 pm

Re: GE and the myth of "safe blue-chip stocks"

Post by TonyDAntonio » Tue Nov 14, 2017 5:07 pm

Not to get too off track here but I can't resist: GE's last CEO, Jeff Imelt, made $17,000,000 in 2016. GE's board had 18 members overseeing this catastrophe. I know this is America and putting limits on salary is just unthinkable but GE's failure doesn't just point out that blue chip stocks may not exist anymore, it also points out the massive con job done by upper management and boards at some/most of these large companies. How much should a GE CEO have made while running the company into the ground? How effective was the board that couldn't see what was happening? And yet I'll bet every employee at GE is familiar with the corporate buzz-phrase, 'pay for performance'. And I'll bet this term was used thousands of times to keep workers' salaries under control while upper management made millions. Shameful.

Valuethinker
Posts: 33176
Joined: Fri May 11, 2007 11:07 am

Re: GE and the myth of "safe blue-chip stocks"

Post by Valuethinker » Tue Nov 14, 2017 5:09 pm

Jack FFR1846 wrote:
Tue Nov 14, 2017 3:42 pm
JCE66 wrote:
Tue Nov 14, 2017 8:39 am
Time for a contrarian view. Consider the quote below.
We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.
Yesterday, my wife took a long-term shot with some play money. Not a lot, mind you, but enough (for us). The price of GE is the lowest since the depths of the financial crisis of 2009. To her, this is a golden opportunity. I had joked with my wife back in 2009 that we should take 25K out of our HELOC and buy GE (it was roughly 8 bucks/share). But she quickly dissuaded me of that with a look. You know, the look only a wife can give.
Your wife should look at DEC in October of 87 (black Monday). How could the second largest computer company possibly not come back. The stock price never did and it never did. I took a bath on it. GE looks even less sure of where it's going at the moment to my amateur eyes.
Catch the falling knife.

Did it on Nortel at 25 bucks (down from 125 so cheap)

DrGoogle2017
Posts: 509
Joined: Mon Aug 14, 2017 12:31 pm

Re: GE and the myth of "safe blue-chip stocks"

Post by DrGoogle2017 » Tue Nov 14, 2017 5:24 pm

It turns out Buffet did sell GE back in June of 2017. He must know something about it.
https://www.cnbc.com/2017/08/14/buffett ... ctric.html

SrGrumpy
Posts: 364
Joined: Wed Aug 05, 2015 3:21 pm

Re: GE and the myth of "safe blue-chip stocks"

Post by SrGrumpy » Tue Nov 14, 2017 5:42 pm

Caduceus wrote:
Tue Nov 14, 2017 4:37 pm
It's interesting that there's so much discussion about GE being a good or bad stock without any accounting language at all. Everyone's speaking at such a high level of abstraction about GE products and industries, etc. Has anyone actually done a deep dive into GE's financial statements? GE's pension assumptions? It's off-balance sheet liabilities?
GE has had 2 dreadful CEOs in a row. Welch was infamous for massaging the numbers, and god knows what Immelt got up to. It's surprising the stock did as well as it did over the years. The deep-dive numbers can't be pretty. Any purchase from now is a bet on Flannery righting the ship. He seems to be off to a good start.

iamlucky13
Posts: 673
Joined: Sat Mar 04, 2017 5:28 pm

Re: GE and the myth of "safe blue-chip stocks"

Post by iamlucky13 » Tue Nov 14, 2017 6:06 pm

Caduceus wrote:
Tue Nov 14, 2017 4:37 pm
It's interesting that there's so much discussion about GE being a good or bad stock without any accounting language at all. Everyone's speaking at such a high level of abstraction about GE products and industries, etc. Has anyone actually done a deep dive into GE's financial statements? GE's pension assumptions? It's off-balance sheet liabilities?
Deep dive, no. I've looked at high level numbers to make sure they make some sense. At the very highest level, they were paying out a dividend slightly higher than their net income. The cut in the dividend fixes that at least. Other initiatives at least seem reasonable as far plans to re-examine ways to reduce costs and focus spending on the segments likely to return the most revenue, but the details of those initiatives are a bit hazy so far, and not easy to really quantify their future results.

Anyways, I mentioned before my plan is to continue dollar cost averaging at least mostly out of GE, one of three remaining individual stocks I own. Even before this thread, I was keenly aware of the point nisiprius wanted to make when he started the thread.

Interestingly, when I have new cash to invest, it's very easy for me to put it directly into my index funds without reservations. When it comes to actually selling off another chunk of my GE to move it into index funds, however, it's difficult to accept that regardless of the fact that it was $30+ a share very recently and I think it's oversold right now, I don't truly know where it will go from here.

Selling off via DCA is supposed to be an easy way around that uncertainty, but since I didn't mentally commit to a specific schedule to follow, the temptation to time my incremental sales is hard to overcome. Not to mention a little voice in my head also wants to convince me this is actually a good time to buy.

User avatar
arcticpineapplecorp.
Posts: 2316
Joined: Tue Mar 06, 2012 9:22 pm

Re: GE and the myth of "safe blue-chip stocks"

Post by arcticpineapplecorp. » Tue Nov 14, 2017 6:06 pm

Valuethinker wrote:
Tue Nov 14, 2017 5:09 pm
Jack FFR1846 wrote:
Tue Nov 14, 2017 3:42 pm
JCE66 wrote:
Tue Nov 14, 2017 8:39 am
Time for a contrarian view. Consider the quote below.
We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.
Yesterday, my wife took a long-term shot with some play money. Not a lot, mind you, but enough (for us). The price of GE is the lowest since the depths of the financial crisis of 2009. To her, this is a golden opportunity. I had joked with my wife back in 2009 that we should take 25K out of our HELOC and buy GE (it was roughly 8 bucks/share). But she quickly dissuaded me of that with a look. You know, the look only a wife can give.
Your wife should look at DEC in October of 87 (black Monday). How could the second largest computer company possibly not come back. The stock price never did and it never did. I took a bath on it. GE looks even less sure of where it's going at the moment to my amateur eyes.
Catch the falling knife.

Did it on Nortel at 25 bucks (down from 125 so cheap)

So the price of GE is the lowest since the depths of the financial crisis of 2009? Does that mean it's cheap now? Not according to the following:
Indeed, GE cut its guidance to $1 to $1.07 a share from the $1.60 to $1.70 the company had indicated following its second-quarter earnings release. Though it lowered the bar, the company still faces a share price that looks at least fully valued and probably a little overvalued even by standard metrics.

Even after another share plunge Tuesday, the stock still traded at nearly 21 times earnings. That's above the S&P 500's 18.4 times P/E and just ahead of the 19.3 P/E that the industrial sector is carrying.

source: https://www.cnbc.com/2017/11/14/why-gen ... -come.html
where's the screaming buy from a valuation perspective?
"Invest we must." -- Jack Bogle | “The purpose of investing is not to simply optimise returns and make yourself rich. The purpose is not to die poor.” -- William Bernstein

Nicolas
Posts: 765
Joined: Wed Aug 22, 2012 7:41 am

Re: GE and the myth of "safe blue-chip stocks"

Post by Nicolas » Tue Nov 14, 2017 6:43 pm

arcticpineapplecorp. wrote:
Tue Nov 14, 2017 6:06 pm
So the price of GE is the lowest since the depths of the financial crisis of 2009?
Not so. GE dipped to $6.66 in March 2009 during the depths of the financial crisis. It closed today at $17.90.
This is the lowest it's been since the end of 2011.

User avatar
arcticpineapplecorp.
Posts: 2316
Joined: Tue Mar 06, 2012 9:22 pm

Re: GE and the myth of "safe blue-chip stocks"

Post by arcticpineapplecorp. » Tue Nov 14, 2017 6:52 pm

Nicolas wrote:
Tue Nov 14, 2017 6:43 pm
arcticpineapplecorp. wrote:
Tue Nov 14, 2017 6:06 pm
So the price of GE is the lowest since the depths of the financial crisis of 2009?
Not so. GE dipped to $6.66 in March 2009 during the depths of the financial crisis. It closed today at $17.90.
This is the lowest it's been since the end of 2011.
right, but it's valuation that matters. The stock is not cheap now even though the price is lower than it's been since 2009.

The argument that the stock is a screaming buy because the price is cheap holds no water when you think about the following:

Say GE stock was $100 a share. Then they do a 5 for 1 stock split. Now the shares are selling for $20 a share. Is GE stock a better buy at $20 now then it was at $100 just because the price is lower?
"Invest we must." -- Jack Bogle | “The purpose of investing is not to simply optimise returns and make yourself rich. The purpose is not to die poor.” -- William Bernstein

hoops777
Posts: 1929
Joined: Sun Apr 10, 2011 12:23 pm

Re: GE and the myth of "safe blue-chip stocks"

Post by hoops777 » Tue Nov 14, 2017 7:05 pm

WhiteMaxima wrote:
Tue Nov 14, 2017 1:21 pm
Air plane engine, healthcare, power genenator. That's the backbone of US economy. We can live without facebook, amazon, apple but can't live without GE. Slim down and sell off other business. It will take time to turn the big shp around. It's a long term play.
I know people who cannot live without Facebook,Amazon and Apple :happy
K.I.S.S........so easy to say so difficult to do.

User avatar
Tycoon
Posts: 1086
Joined: Wed Mar 28, 2012 7:06 pm

Re: GE and the myth of "safe blue-chip stocks"

Post by Tycoon » Tue Nov 14, 2017 7:14 pm

avalpert wrote:
Tue Nov 14, 2017 2:55 pm
WhiteMaxima wrote:
Tue Nov 14, 2017 1:21 pm
Air plane engine, healthcare, power genenator. That's the backbone of US economy. We can live without facebook, amazon, apple but can't live without GE. Slim down and sell off other business. It will take time to turn the big shp around. It's a long term play.
Other companies do all of those things. We can most definitely live without GE.
Precisely. And there are other companies that do it better.
...I might be just beginning | I might be near the end. Enya | | C'est la vie

Nicolas
Posts: 765
Joined: Wed Aug 22, 2012 7:41 am

Re: GE and the myth of "safe blue-chip stocks"

Post by Nicolas » Tue Nov 14, 2017 8:28 pm

arcticpineapplecorp. wrote:
Tue Nov 14, 2017 6:52 pm
Nicolas wrote:
Tue Nov 14, 2017 6:43 pm
arcticpineapplecorp. wrote:
Tue Nov 14, 2017 6:06 pm
So the price of GE is the lowest since the depths of the financial crisis of 2009?
Not so. GE dipped to $6.66 in March 2009 during the depths of the financial crisis. It closed today at $17.90.
This is the lowest it's been since the end of 2011.
right, but it's valuation that matters. The stock is not cheap now even though the price is lower than it's been since 2009.

The argument that the stock is a screaming buy because the price is cheap holds no water when you think about the following:

Say GE stock was $100 a share. Then they do a 5 for 1 stock split. Now the shares are selling for $20 a share. Is GE stock a better buy at $20 now then it was at $100 just because the price is lower?
I'm not saying anything about the value of this stock. That was someone else up-thread. It wasn't me.

I'm only saying that the statement that the price of the stock is "the lowest since the depths of the financial crisis of 2009" is not true. It was lower than today as recently as at the end of 2011.

Now you again state "the price is lower than it's been since 2009". This is false. Consult a chart of GE's price and you'll see that the price was lower than today in most of the last half of 2011. The correct statement would be that the price is lower than it's been since the end of 2011.

User avatar
CyclingDuo
Posts: 843
Joined: Fri Jan 06, 2017 9:07 am

Re: GE and the myth of "safe blue-chip stocks"

Post by CyclingDuo » Tue Nov 14, 2017 10:13 pm

arcticpineapplecorp. wrote:
Tue Nov 14, 2017 6:06 pm
where's the screaming buy from a valuation perspective?
Around $11-12 if the stock had stopped falling, and was starting to base there if the forecast was for .96 - $1.07 in EPS.

:greedy

User avatar
nisiprius
Advisory Board
Posts: 34162
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Re: GE and the myth of "safe blue-chip stocks"

Post by nisiprius » Tue Nov 14, 2017 10:49 pm

WhiteMaxima wrote:
Tue Nov 14, 2017 4:08 pm
...As for the GE company, this is a very unique case. GE is much like an index fund...
No, it isn't. It isn't regulated by the Investment Company Act of 1940.
...it has no restrictions it has too many of business. You name it.
Like Litton Industries, ITT, and Ling-Temco-Vought.
During 2008, the GE capital almost killed GE. So they went back to their core business: infrastructure, power plant, health care and airplane engine. It is the core of US economy...
Very likely, in 2006, people would have said that GE Capital and Genworth were additional diversification.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

User avatar
snackdog
Posts: 116
Joined: Wed Nov 12, 2014 4:57 am

Re: GE and the myth of "safe blue-chip stocks"

Post by snackdog » Wed Nov 15, 2017 3:32 am

There is nothing sacred about the DOW. None of the original companies from 1896 are still around. Oh wait, one is - GE! It has actually been kicked out of the DOW twice before and risen from the ashes.

Anyhow, it has been struggling for years. They need to do something different, for sure, even if it is wrong. You all own it in your index funds. If the OP has owned a lot of the stock that may be a regret at this point. “Safe blue chip stocks” is a phrase from the 70s which has meant “meager performance” since the 90s or so.

Valuethinker
Posts: 33176
Joined: Fri May 11, 2007 11:07 am

Re: GE and the myth of "safe blue-chip stocks"

Post by Valuethinker » Wed Nov 15, 2017 3:52 am

arcticpineapplecorp. wrote:
Tue Nov 14, 2017 6:06 pm
Valuethinker wrote:
Tue Nov 14, 2017 5:09 pm
Jack FFR1846 wrote:
Tue Nov 14, 2017 3:42 pm
JCE66 wrote:
Tue Nov 14, 2017 8:39 am
Time for a contrarian view. Consider the quote below.
We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.
Yesterday, my wife took a long-term shot with some play money. Not a lot, mind you, but enough (for us). The price of GE is the lowest since the depths of the financial crisis of 2009. To her, this is a golden opportunity. I had joked with my wife back in 2009 that we should take 25K out of our HELOC and buy GE (it was roughly 8 bucks/share). But she quickly dissuaded me of that with a look. You know, the look only a wife can give.
Your wife should look at DEC in October of 87 (black Monday). How could the second largest computer company possibly not come back. The stock price never did and it never did. I took a bath on it. GE looks even less sure of where it's going at the moment to my amateur eyes.
Catch the falling knife.

Did it on Nortel at 25 bucks (down from 125 so cheap)

So the price of GE is the lowest since the depths of the financial crisis of 2009? Does that mean it's cheap now? Not according to the following:
Indeed, GE cut its guidance to $1 to $1.07 a share from the $1.60 to $1.70 the company had indicated following its second-quarter earnings release. Though it lowered the bar, the company still faces a share price that looks at least fully valued and probably a little overvalued even by standard metrics.

Even after another share plunge Tuesday, the stock still traded at nearly 21 times earnings. That's above the S&P 500's 18.4 times P/E and just ahead of the 19.3 P/E that the industrial sector is carrying.

source: https://www.cnbc.com/2017/11/14/why-gen ... -come.html
where's the screaming buy from a valuation perspective?
You'd have to do a Sum-of-the-Parts analysis. Because you have some quite high quality businesses (medical, aero engines) buried in a much bigger conglomerate. The sort of multiples private equity is paying for LBO, you could probably sell Medical for 18-21x (EV/ EBITDA).

It's not unusual for a new CEO to "kitchen sink" it on the bad news. Write down everything you can (big asset impairment charges coming?) and move the Street's estimate of your earnings down to a number you know you can make.

All the bad news up front. Buys him say 18 months to make things better.

Valuethinker
Posts: 33176
Joined: Fri May 11, 2007 11:07 am

Re: GE and the myth of "safe blue-chip stocks"

Post by Valuethinker » Wed Nov 15, 2017 3:54 am

nisiprius wrote:
Tue Nov 14, 2017 10:49 pm
WhiteMaxima wrote:
Tue Nov 14, 2017 4:08 pm
...As for the GE company, this is a very unique case. GE is much like an index fund...
No, it isn't. It isn't regulated by the Investment Company Act of 1940.
...it has no restrictions it has too many of business. You name it.
Like Litton Industries, ITT, and Ling-Temco-Vought.
During 2008, the GE capital almost killed GE. So they went back to their core business: infrastructure, power plant, health care and airplane engine. It is the core of US economy...
Very likely, in 2006, people would have said that GE Capital and Genworth were additional diversification.
And they did-- argue the financial side was valuable in diversification.

The problem is now it was tying up too much capital and regulatory costs have soared.

The company is a Conglomerate, but it's not an Investment Trust (Closed End Fund). It pays taxes like a normal corporation of that scale and diversity of international operations.

It's now a diversified industrial conglomerate. Think Siemens or United Technologies.

harrad
Posts: 17
Joined: Mon Sep 29, 2014 6:50 am

Re: GE and the myth of "safe blue-chip stocks"

Post by harrad » Wed Nov 15, 2017 7:37 am

Hoping not to derail the conversation but wanted to share a personal experience with GE which points to a larger decay in the company.

Was being interviewed for a research position at the global research center and met some of the most brilliant folks there. To get me excited they showed me Thomas Edison's desk and Langmuir's workspace. However at the end of what I thought was great interview, the hiring manager told me that even though this was a research center, fundamental research was discouraged by management! It was heartbreaking to see top graduates from schools around the world not being put to the best use. I still decided to accept the offer with abysmal pay with the idea that I get to work with fine colleagues, a personal setback forced me not to go through with it. It is a shame to see a great company dying slowly from within.

JCE66
Posts: 252
Joined: Wed Jul 15, 2015 6:08 pm

Re: GE and the myth of "safe blue-chip stocks"

Post by JCE66 » Wed Nov 15, 2017 7:59 am

Bogleheads....You're a rough crowd; I have come to appreciate it. 8-)

I have a pretty simple philosophy when it comes to my wife's investing: Don't try to micromanage, always encourage.

As an aside: The overwhelming majority of her investments are concentrated in VTSAX (~90%). If she wants to take a shot, who am I to dissuade her? I cannot argue with her reasoning. But I will tell you what. Let's compare notes in 10-20 years. I plan to be around. :happy

User avatar
nisiprius
Advisory Board
Posts: 34162
Joined: Thu Jul 26, 2007 9:33 am
Location: The terrestrial, globular, planetary hunk of matter, flattened at the poles, is my abode.--O. Henry

Re: GE and the myth of "safe blue-chip stocks"

Post by nisiprius » Wed Nov 15, 2017 8:34 am

snackdog wrote:
Wed Nov 15, 2017 3:32 am
...“Safe blue chip stocks” is a phrase from the 70s which has meant “meager performance” since the 90s or so...
As recently as 2009, Brent Arends in the Wall Street Journal was suggesting that they were an appropriate place to put emergency cash.

(To be fair, but what fun is that?, $10,000 invested in GE on the date of Arends' article, 9/24/2017 would, as of 11/14/2017, recent drop and all, now have grown to $13,638.65... for an annualized return of 3.89%).

Putting Your Emergency Money in Blue Chips

Here's the headline and subtitle, the WSJ seems to have ended the "Google exception" for their paywall.
Image
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

SGM
Posts: 2391
Joined: Wed Mar 23, 2011 4:46 am

Re: GE and the myth of "safe blue-chip stocks"

Post by SGM » Wed Nov 15, 2017 8:52 am

If world peace broke out and defense stocks plunged I would be a buyer. The difficult decision would be when to sell.

not4me
Posts: 167
Joined: Thu May 25, 2017 3:08 pm

Re: GE and the myth of "safe blue-chip stocks"

Post by not4me » Wed Nov 15, 2017 10:30 am

JCE66 wrote:
Wed Nov 15, 2017 7:59 am
Bogleheads....You're a rough crowd; I have come to appreciate it. 8-)

I have a pretty simple philosophy when it comes to my wife's investing: Don't try to micromanage, always encourage.

As an aside: The overwhelming majority of her investments are concentrated in VTSAX (~90%). If she wants to take a shot, who am I to dissuade her? I cannot argue with her reasoning. But I will tell you what. Let's compare notes in 10-20 years. I plan to be around. :happy
Not to pick on your choice of words, but I'm curious if whether your wife views the 10% that is "non-VTSAX" as investments or trades? If trades, does she have a method that might be shareable? I confess this thread has about convinced me that I might want to find time to research more about GE & see if a trade looks profitable now or in near future....

edge
Posts: 3221
Joined: Mon Feb 19, 2007 7:44 pm
Location: Great Falls VA

Re: GE and the myth of "safe blue-chip stocks"

Post by edge » Wed Nov 15, 2017 11:52 am

People believe this because they have an inability to think over long periods of time. Strong companies take a while to die and it happens infrequently enough so that people operate as if it 'never happens'.


Post Reply