I think GE will eventually recover, as it has a very strong technological leadership in many important areas (energy, medical, transportation, etc).
However, if corporate history is any guide, it may well be decades before we see the old dividend reinstated. The unfortunate historic reality is that dividends get slashed to half, or a third, or a quarter, or less, of their current values, then, when the company recovers, they are typically increased by a few percent per year. Crony BOD's have gotten into the habit of allowing executives to run companies for the benefit of managements and boards, not owners (aka shareholders), so everyone gets his bonus, but shareholders get no dividend (or a paltry one).
(disclosure: Long GE with significant position and patiently awaiting its recovery)
On May 17 08:02 PM connorport wrote:
> I believe the writer means that it would be a buy now at $13 with > a target price of $30. We may see this level but not until GE announces > a full reinstatement of dividends. Many flocked away from the stock > but at the current price you really can't go wrong buying it if you > plan to hold long. New investors to the stock today will not only > reap the rewards of a reinstated dividend in a year or so but also > a 100+% value increase. If i owned GE @ say $35 average then now > would be the time to averaged down and volume up on the stock. If > dividends are cut for now then selling covered calls may be one way > to offset the loss in income. Anyone using covered calls to offset > the dividend losses?
I also think that GE is a great value below $10, even though risks remain.
However, I think one should not assume any slashed dividend will being reinstated, as historically, when companies have slashed dividends, it has taken decades for them to slowly raise them back to their former level, even in nominal terms. In real, inflation adjusted terms, it could take a generation, if ever. The historic trend has been slashing by 50%-80% in bad times, then increasing by a paltry few % in good times.
On Apr 21 10:58 AM sthpawil wrote:
> I consider buying GE back when it was below $7 an incredibly smart > move on my part. In a few years when the dividend returns to its > normal level, the ROI will be huge since my cost basis is so low. > Between that and my capital gains, I don't see how anyone with an > ounce of common sense can make the argument that one should avoid > these stocks. Articles like this are very short sited and proof that > so called "experts" are people too and they make mistakes just like > the rest of us.
S&P 500 Watch: March 'Winners' Are Actually the Biggest Losers [View article]
Thanks for an informative analysis. When the market was near its lows I had argued that sound stocks were by no means "cheap"; and that the low SP500 was more due to some of its constituents being demolished, rather than due to its good companies becoming "cheap". This was just an observation, now bolstered by your excellent analysis, which says that the demolished ones have stirred back to life in the ER, boosting the SP500.
I still maintain that at current levels stocks are not "cheap" except relative to the bubble era. Dividends are being slashed at astonsihing rates, and historically, companies which drastically cut dividends have restored them slowly, if at all. Thus, I expect SP500 dividends will not climb back to 2007 levels for many years, and this suggests to me that stocks will be worth less than they were in 2007 for many years as well.
The 'Sell After Dividend Cut/Freeze' Rule, With Exceptions [View article]
A very sensible and excellent article. However, those who say that the stocks mentioned by the author are down just because of the general market downtrend have a very good point.
The author would be commended if he were to present, in a future article, data over a longer period, and to show the change suffered by the stock which froze or cut its dividend relative to the change in the S&P500 12 months after the dividend freeze or cut. My hunch is that the author would indeed find a correlation that concurs with his current thesis.
Having been a dividend investor for over thirty years, my experience is that dividend cuts are usually (perhaps 80% of the time) a sign that a stock will underperform.
Simon, as ususal, you bring up many excellent points. Although the party in control has changed, it is the same policy of using public funds in opaque ways to subsidise the financial industry's gambling titans.
The AIG situation is astonishing, as they seem to have a bottomless cesspool of CDS's, and it now appears that the government wants to pass endless, meaningless casino-gambling liabilities to the taxpayers. Is it not better to let AIG's counter parties swallow the loss of having placed their bets with a hollow counter party?
If GE fails, it will be an umistakable sign that the American century is over. The industrial part, in addition to being a successful global leader in many technologies, is also a symbol of American achievement. The jet engine business is critical to our defense, as well as to our economy.
Geithner and Bernanke, with all their recently minted paper trillions, will have to figure a way to take over the financial parts of GE and leave the industrial sections to continue to thrive. This is far more important to the future of the US than subsidizing AIG's CDS casino, funneling money to incompetent WS bankers, or paying deadbeats' mortgages.
I am glad you have turned optimistic because your opportunity range of 6500-6800 on the dow has arrived. I certainly agree that there are good values in many stocks, but many still are overvalued, and I suspect that the current general levels of the markets (+/-25%) will be with us for some years, as they are closer to normal levels than the irrational exuberance that began in the mid-90's.
I must respectfully take issue with some of your points, as shown below:
One: Economic fundamentals are a lot worse than you hear. Productive activity has been reduced, and replaced by frothy paper shuffling over the past two decades. Americans are still creatures of excessive optimism, not necessarily warranted by facts.
Two: "Geithner will ride to the rescue", but all he can do is create inflation, and further distort the economy by having the productive subsidize the unproductive.
Three: Obama will constrain American ingenuity, with punitive taxes on successful entrepreneurs.
Four: "General Electric is not dead" - Agreed!
Five: "The market will rise, and fast". If it does, it will only be to fall again. The current general levels (+/- 25%) are consistent with pre-bubbles history and with rational metrics and realistic economic expectations. The notion that we shall shoot back to bubble levels soon and fast is doubtful.
Unlike the banks, GE actually designs and manufactures useful equipment that is in great worldwide demand; and is a global leader in technology. GE has on-going demand for jet engines, turbines, and other equipment, and a large, captive customer base, dependent on GE for parts and on-going service contracts, both civillian and military. By contrast, the only things the banks manufactured were CDO's and MBS's.
Although stressed, my belief is that GE will not only survive, but also thrive. I agree, however, with those who see need for new and stronger leadership.
(disclosure: recently added substantially to long position in GE)
Jim Rogers on the Economy - Bearish on Stocks and Government [View article]
You state " Let's say we're at 100 right now and letting everyone fail takes us to 25 (made up numbers, just for the sake of an example). Let's say after that we grow 10% annually (an awesome growth rate). It would take us over 14 years to get back to where we are."
I'd suggest that letting the failures fail would take us down to 80-85, not 25!
GE: Lose AAA Rating or Cut Dividend [View article]
You make many good points. I own all three GE, Alstom (former ABB), and SI, and have added to all when the market tanked in November. I am looking to add more, but at the right value.
GE in the teens is cheap, despite the ugly baggage in broadcasting & finance. I would not bank on continued and unending taxpayer support for the dividend and AAA rating, as the political winds are fickle. Alstom (AOMFF) also has precarious French govt. support, which may change with the whims of the EU competition regulators, and additionally their technology is much weaker than GE's. SI is a great company, but stock is pretty expensive in the $70's. I added to it @ $45 some weeks ago, and feel that at $40-$48 it makes good sense.
Note too that neither SI or AOMFF make aircraft engines, and this gives GE a big edge when global economy rebounds, as well as access to military contracts. For the long term (>5 trs), I think GE is likely to outperform the others if you buy it in the mid-teens, that is unless SI returns to the 40's.
On Jan 11 05:00 PM jegan ;-) wrote:
> mdub..Aside from the excessive use of CAPS, I agree with Diegojames... > (Also agree with the leek pie and salmon)... GE has too many divisions > that are subject to teh whims of our present economic collapse. And > the financial guarantee only really applies to GMAC, just part of > GE. What's the near-term upside for GE? The poor quality appliance > division? Aerospace? Not the reconstituted finance division! That > really only leaves the industrials. And maybe in a year that might > start to work if our new President can actually get the infrastructure > play moving, or if China gets back in gear.... Remember that these > **big** projects have a lot of hurdles, EPA, lawsuits, contracts, > engineering etc... and they don;t turn on a dime. Having said that, > GE does seem to have activity in China now that might ramp up. The > question there is, why buy GE and drag around everything else, when > you can buy ABB or SI which are already working well and don't have > the rest of the business to drag along. > > jegan ;-)
Exxon Apostasy: A Closer Look at the Oil Giant's Real Valuation [View article]
I've owned both Exxon and Mobil shares for several decades, and have added to my holdings both before and after their merger, from time to time. With splits, I've built up a significant position over three decades.
Since 2003, whenever I've considered adding to my position, I've been deterred by the price, which, I thought, represented infatuation by the market participants rather than fundamental value. Thus, I agree with your apostasy.
Great company, but stock is overpriced, so I just hold onto my accumulated position as I am a buy-and-hold long term investor, not a trader. I have similar observations about several other big name companies of which the market has become enamoured.
GE's Dividend Assertion is Dangerous [View article]
You state that ".... bad economic statistics and the continuous stream of socialist-type bailouts will have the combined effect of moving government CDS spreads to 65-75 basis points by early 2009, in anticipation of rating downgrades (presently AAA). "
Who will you buy CDS against Govt debt from. AIG perhaps?
Equities Update: Energy, Financials Derail Dow's Run [View article]
On Nov 12 08:55 PM LaChic wrote:
> well, we had the job report and to some this was great news, and
> the market went down, which brings me to my question? is this is
> it?
Time to Reenter GE [View article]
I think GE will eventually recover, as it has a very strong technological leadership in many important areas (energy, medical, transportation, etc).
However, if corporate history is any guide, it may well be decades before we see the old dividend reinstated. The unfortunate historic reality is that dividends get slashed to half, or a third, or a quarter, or less, of their current values, then, when the company recovers, they are typically increased by a few percent per year. Crony BOD's have gotten into the habit of allowing executives to run companies for the benefit of managements and boards, not owners (aka shareholders), so everyone gets his bonus, but shareholders get no dividend (or a paltry one).
(disclosure: Long GE with significant position and patiently awaiting its recovery)
On May 17 08:02 PM connorport wrote:
> I believe the writer means that it would be a buy now at $13 with
> a target price of $30. We may see this level but not until GE announces
> a full reinstatement of dividends. Many flocked away from the stock
> but at the current price you really can't go wrong buying it if you
> plan to hold long. New investors to the stock today will not only
> reap the rewards of a reinstated dividend in a year or so but also
> a 100+% value increase. If i owned GE @ say $35 average then now
> would be the time to averaged down and volume up on the stock. If
> dividends are cut for now then selling covered calls may be one way
> to offset the loss in income. Anyone using covered calls to offset
> the dividend losses?
Dividend Stocks to Avoid [View article]
However, I think one should not assume any slashed dividend will being reinstated, as historically, when companies have slashed dividends, it has taken decades for them to slowly raise them back to their former level, even in nominal terms. In real, inflation adjusted terms, it could take a generation, if ever. The historic trend has been slashing by 50%-80% in bad times, then increasing by a paltry few % in good times.
On Apr 21 10:58 AM sthpawil wrote:
> I consider buying GE back when it was below $7 an incredibly smart
> move on my part. In a few years when the dividend returns to its
> normal level, the ROI will be huge since my cost basis is so low.
> Between that and my capital gains, I don't see how anyone with an
> ounce of common sense can make the argument that one should avoid
> these stocks. Articles like this are very short sited and proof that
> so called "experts" are people too and they make mistakes just like
> the rest of us.
S&P 500 Watch: March 'Winners' Are Actually the Biggest Losers [View article]
I still maintain that at current levels stocks are not "cheap" except relative to the bubble era. Dividends are being slashed at astonsihing rates, and historically, companies which drastically cut dividends have restored them slowly, if at all. Thus, I expect SP500 dividends will not climb back to 2007 levels for many years, and this suggests to me that stocks will be worth less than they were in 2007 for many years as well.
The 'Sell After Dividend Cut/Freeze' Rule, With Exceptions [View article]
The author would be commended if he were to present, in a future article, data over a longer period, and to show the change suffered by the stock which froze or cut its dividend relative to the change in the S&P500 12 months after the dividend freeze or cut. My hunch is that the author would indeed find a correlation that concurs with his current thesis.
Having been a dividend investor for over thirty years, my experience is that dividend cuts are usually (perhaps 80% of the time) a sign that a stock will underperform.
The Road to Economic Hell [View article]
The AIG situation is astonishing, as they seem to have a bottomless cesspool of CDS's, and it now appears that the government wants to pass endless, meaningless casino-gambling liabilities to the taxpayers. Is it not better to let AIG's counter parties swallow the loss of having placed their bets with a hollow counter party?
GE: The Decimation Continues [View article]
Geithner and Bernanke, with all their recently minted paper trillions, will have to figure a way to take over the financial parts of GE and leave the industrial sections to continue to thrive. This is far more important to the future of the US than subsidizing AIG's CDS casino, funneling money to incompetent WS bankers, or paying deadbeats' mortgages.
Five Predictions for This Market [View article]
I must respectfully take issue with some of your points, as shown below:
One: Economic fundamentals are a lot worse than you hear. Productive activity has been reduced, and replaced by frothy paper shuffling over the past two decades. Americans are still creatures of excessive optimism, not necessarily warranted by facts.
Two: "Geithner will ride to the rescue", but all he can do is create inflation, and further distort the economy by having the productive subsidize the unproductive.
Three: Obama will constrain American ingenuity, with punitive taxes on successful entrepreneurs.
Four: "General Electric is not dead" - Agreed!
Five: "The market will rise, and fast". If it does, it will only be to fall again. The current general levels (+/- 25%) are consistent with pre-bubbles history and with rational metrics and realistic economic expectations. The notion that we shall shoot back to bubble levels soon and fast is doubtful.
How GE Compares to Other Banks [View article]
Although stressed, my belief is that GE will not only survive, but also thrive. I agree, however, with those who see need for new and stronger leadership.
(disclosure: recently added substantially to long position in GE)
Jim Rogers on the Economy - Bearish on Stocks and Government [View article]
I'd suggest that letting the failures fail would take us down to 80-85, not 25!
GE: Lose AAA Rating or Cut Dividend [View article]
GE in the teens is cheap, despite the ugly baggage in broadcasting & finance. I would not bank on continued and unending taxpayer support for the dividend and AAA rating, as the political winds are fickle. Alstom (AOMFF) also has precarious French govt. support, which may change with the whims of the EU competition regulators, and additionally their technology is much weaker than GE's. SI is a great company, but stock is pretty expensive in the $70's. I added to it @ $45 some weeks ago, and feel that at $40-$48 it makes good sense.
Note too that neither SI or AOMFF make aircraft engines, and this gives GE a big edge when global economy rebounds, as well as access to military contracts. For the long term (>5 trs), I think GE is likely to outperform the others if you buy it in the mid-teens, that is unless SI returns to the 40's.
On Jan 11 05:00 PM jegan ;-) wrote:
> mdub..Aside from the excessive use of CAPS, I agree with Diegojames...
> (Also agree with the leek pie and salmon)... GE has too many divisions
> that are subject to teh whims of our present economic collapse. And
> the financial guarantee only really applies to GMAC, just part of
> GE. What's the near-term upside for GE? The poor quality appliance
> division? Aerospace? Not the reconstituted finance division! That
> really only leaves the industrials. And maybe in a year that might
> start to work if our new President can actually get the infrastructure
> play moving, or if China gets back in gear.... Remember that these
> **big** projects have a lot of hurdles, EPA, lawsuits, contracts,
> engineering etc... and they don;t turn on a dime. Having said that,
> GE does seem to have activity in China now that might ramp up. The
> question there is, why buy GE and drag around everything else, when
> you can buy ABB or SI which are already working well and don't have
> the rest of the business to drag along.
>
> jegan ;-)
Exxon Apostasy: A Closer Look at the Oil Giant's Real Valuation [View article]
Since 2003, whenever I've considered adding to my position, I've been deterred by the price, which, I thought, represented infatuation by the market participants rather than fundamental value. Thus, I agree with your apostasy.
Great company, but stock is overpriced, so I just hold onto my accumulated position as I am a buy-and-hold long term investor, not a trader. I have similar observations about several other big name companies of which the market has become enamoured.
GE's Dividend Assertion is Dangerous [View article]
Who will you buy CDS against Govt debt from. AIG perhaps?