G.E. Fails To Deliver

General Electric (GE) is the smallest position in my portfolio and I don’t really do much work on it. I’m a big fan of Jeffrey Immelt and think that GE is the quintessential American company, warts and all. But the main reason we own this stock is because my girlfriend was won over by the Ecomagination program. I’ve never been able to put a valuation on it which is why it’s only a small (< 3%) portion of a fairly focused portfolio.

I don’t usually follow GE and had actually forgotten their earnings call was scheduled today. This earnings miss is a bit of a jolt — it kind of hit me in a similar way as when I woke up one morning in mid-August and read that the European Central Bank had pumped in $100B+ dollars into their system.

It may be too early to tell but this GE miss, and the violent reaction in that stock, may be a sentiment changer for the broader market. The financial media and the averages had been behaving as if the all-clear signal had sounded. GE’s miss may be a harbinger of the next down phase. The Fed can mainline money directly into the veins of Wall Street now but can they do the same for “real economy” firms? Has the turmoil at last arrived on Main Street? Will the equity markets start to acknowledge what the bond & credit markets have been asserting all along?

GE’s main segment is its financial segment so it may be a stretch to equate GE’s troubles with the broader economy at large.  The earnings miss was largely predicated on writedowns and missed targets in the financial segment. But the healthcare segment also disappointed significantly, making it difficult to dismiss this as solely a credit crunch phenomenon.

There may be an opportunity lurking in here but at ~$32 per share, I’m not inclined to jump in.  The stock has been cheaper earlier this year for no reason (as opposed to cheaper now for a real reason) and as I said before, I don’t know what its intrinsic value is.

My sense is that they would do well to divest themselves of NBC, which is poorly run from my view in the cheap seats (just go to the CNBC website, who can’t seem to update podcasts or MSNBC, who can’t stream video properly). The financial segment seems a bit of a black box. Healthcare apparently is vulnerable and faces regulatory issues. Everyone loves their infrastructure and energy segments but apparently those can’t pull the train.

Immelt had been under a low-pressure cooker to do something about GE’s stock price; after this miss, I imagine the heat will be turned up and if things don’t turn around soon, his position will be threatened, which would be a negative in my mind. But at some point, the stock’s got to move up or he will be gone.

Bloomberg article on GE Q1 2008 earnings

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