Showing posts with label GE. Show all posts
Showing posts with label GE. Show all posts

Sunday, October 29, 2017

Stock Musings

Two stocks catch my eye as of October 27, 2017: Freds, Inc. (FRED) and General Electric (GE).

I've never set foot in a Fred's. The stock closed at a meager $4.77/sh on Friday, breaking the psychologically important $5/sh mark. Its inventory numbers seem high, and it's not doing a good job calling in receivables as quickly as possible. While Dollar General (DG) and similar stores have prospered, especially in America's Midwest, Fred's never seemed to capture the magic formula. Nevertheless, at below $5/sh, Fred's seems like a value play. Alden Global Capital has made a substantial investment and appears to be holding major losses, but its presence could spur activism and perhaps break Fred's out of its complacency.

General Electric stock closed at $20.79/sh on Friday. The last time GE's stock saw such levels was in 2012. With a new CEO determined to turn the company around and already in cost-cutting mode, GE seems like a potential buy on weakness. 


Disclosure: I own GE and FRED stock. My positions may change at any time. Nothing herein constitutes investment advice or a recommendation to buy or sell any security. You are responsible for your own due diligence. 

Update on November 30, 2017: after a month, GE has declined 11.1%; FRED has increased 8.4%. The S&P 500 increased around 2% during the same time period. I am curious to see the comparative performance in 3 and 5 years.

Update on December 6, 2017: FRED released earnings before the market open, and the stock declined over 20% to 4.02/share. When I started buying the stock, I felt as if two options existed: 1) bankruptcy; or 2) a buyout. Seeing Alden Global Capital continue its involvement concerned me because of Alden's history with companies post-bankruptcy re-organization. In this case, despite its declining revenues and stock price, FRED has openly and consistently stated its desire to increase its footprint. Given recent developments, I speculate a buyout seems more likely now than bankruptcy. 


More specifically, the writedown for inventory is significant and addresses my primary concern of financial misstatements due to overinflated inventory. The dividend cancellation is harsh but also indicates neither the company nor Alden is steering Fred's into bankruptcy in order to cash in on its bonds (whether by going short and/or by buying secured or first-in-line bonds at a steep discount). As such, I have bought more FRED shares today. As always, my positions may change at any time. Nothing herein constitutes investment advice or a recommendation to buy or sell any security. You are responsible for your own due diligence. 

Update on February 8, 2018: I have been averaging down on both FRED and GE in liquid and retirement accounts. FRED closed at 3.02/sh. GE closed at 14.45/sh. My positions may change at any time. Nothing herein constitutes investment advice or a recommendation to buy or sell any security. You are responsible for your own due diligence. 

Update on May 4, 2018: FRED has declined to about 1.60/sh. It's my worst investing mistake so far. Once a company cuts its dividend completely, it's usually time to jump ship. My mistake post-Trump was sincerely believing the country would direct investment into smaller regions where much of Trump's base resides. In reality, we are seeing tax reforms that handicap smaller enterprises and M&A that prioritizes existing market leaders. 

Update on October 11, 2018: GE is 13.62/share as of today's mid-day trading. 
Update on November 1, 2018: JP Morgan's Stephen Tusa appears to be correct in his prediction of GE stock to 10/share. GE stock looks poised to close around 10.12/share. I continue to hold. 

Wednesday, April 15, 2009

Shareholder Communications: Kudos to Dominion

Writing shareholder communications is a thankless task. Most shareholders throw away the reports, and even the ones who keep them won't read the fine print. This apathy results because most companies do a terrible job communicating with their small shareholders. With the exception of Berkshire Hathaway (aka Warren Buffett), no company seems to invest much time in producing creative or thoughtful shareholder communications. I know this because I read all my annual reports. I don't claim to understand everything I read, but I love reading them. Here are some highlights so far:

1. GE's 2008 annual report was excellent. Mr. Immelt continues to do a great job re-building his own and his company's reputation. When Mr. Immelt states, "I assure you that we will work hard to restore your trust, and we will continue to work hard to build GE for the long term," I believe him. Here are some other notable sections from the letter:

On government's expanding role: The interaction between government and business will change forever. In a reset economy, the government will be a regulator; and also an industry policy champion, a financier, and a key partner.

On Wall Street: The financial industry will radically restructure. There will be less leverage, fewer competitors, and a fundamental repricing of risk. It will remain an important industry, just different.

On America's future: I run a global company, but I am a citizen of the U.S. I believe that a popular, thirty-year notion that the U.S. can evolve from being a technology and manufacturing leader to a service leader is just wrong. In the end, this philosophy transformed the financial services industry from one that supported commerce to a complex trading market that operated outside the economy. Real engineering was traded for financial engineering. In the end, our businesses, our government, and many local leaders lost sight of what makes a nation great: a passion for innovation.

You can read the full letter here.

2. Other companies also took their duty to communicate to shareholders seriously. Kudos to Dominion Resources, Inc. (D) for its transparent, detailed 2009 proxy statement. I've always believed companies should be as transparent as possible when it comes to compensation and other issues, and Dominion did a fantastic job this year. It even managed to do a decent job defending the indefensible--supplemental executive pension plans. You would think after being paid millions of dollars, executives could manage their retirements without further shareholder assistance, but most companies pay executives millions of dollars after their executives leave.

Dominion stated that much of its executive compensation is based on long-term goals, so it needed an extra carrot to attract top performers. In addition, it argued its supplemental pensions are tied to restrictive covenants such as non-competes, dissuading retired executives from working for competitors. (Some states, such as California, won't enforce non-competes, but Dominion isn't a California corporation.) Elsewhere in the report, Dominion supported its arguments with charts showing that most of its executives' compensation was tied to long-term goals rather than base salaries. I'm not saying I was convinced, but at least I can clearly understand Dominion's point of view.

So far, only Dominion and Walmart have caught my eye when it comes to outstanding shareholder reports. They deserve recognition for their outstanding work.

Dominion isn't perfect. Page five of its "2008 Summary Annual Report" has a picture of a television screen showing what appears to be a generic basketball game. No one but a huge basketball fan would notice anything unusual about the picture, and even then, you'd need a magnifying glass to notice anything non-generic. Now, I happen to be a huge basketball fan, and I recognized Grant Hill and Joe Dumars from their Detroit Pistons days. What's the problem? Grant Hill hasn't played for Detroit since 2000. Joe Dumars hasn't played for Detroit since 1999. That means Dominion used a picture that is at least nine years old. Do'h!

Thursday, January 15, 2009

Intel Makes its Numbers, and My Deja Vu Experience

Looks like my hits are coming early this year--as I predicted, Intel (INTC) made its earnings numbers today. See my prediction here, and the AP earnings summary here. If the presidential inauguration goes well, Intel stock may rise above $14/share next week (Monday is a holiday). If I am correct in this follow-up prediction, I should achieve a 5.7% gain in less than one week. (If you're interested, you can view the results of my 2008 predictions here.) (Update on January 28, 2009: Intel stock today increased above $14/share, making my prediction true, but a few days later than I expected.)

If you read the first article linked above, you'll notice that two analysts downgraded Intel, even assigning a $10/share price to Intel recently. (Intel is trading around 13.58/share in after-hours trading.) Analysts came under fire because they were overly optimistic during the subprime crisis, so expect a reversal of sentiment--analysts will now become too pessimistic. In over a decade of investing, I've rarely seen any analyst issue "sell" ratings or assign prices to blue-chip companies below current trading levels. If you're a contrarian investor, you may be encouraged by these overly pessimistic signs. I know I am.

I just re-read a Money "special report" issue from September 2002, another turbulent time. The cover page had the following deja vu titles: "When will the bear market end?"; "Where should I put my cash?"; and "Who can I trust?" As I flipped through the pages, I began smiling. If Money magazine re-issued its September 2002 issue today, no one would notice any outdated information. Indeed, most stock prices and indices are back to where they were in 2002. In addition, Americans had just suffered through the Enron and Worldcom debacles, which reduced not only investor confidence, but faith in the entire capitalistic apparatus.

Let me share with you some lines from Money's 2002 special report--see if they look or feel familiar:

Stock prices in free-fall: "There's a disconnect between how these businesses are doing and how their stocks are performing," says one manager. (p. 36)

Anger over corporate irresponsibility: Nell Minow has developed some very clear ideas of how to cure what ails corporate America. To her, it boils down to one thing: Change the way boards of directors operate. Yes, reform of the accounting profession is needed. Yes, it ought to be easier to put corporate fraudsters in jail. Yes, something has to be done about those insanely outsize options packages that have given so many executives the motive to commit fraud. But to Minow, all of this is secondary to reforming corporate boards. (pps. 57-58). [Author's note: someone get Ms. Minow an SEC position pronto.]

Anger over inadequate government oversight: But after 2 1/2 years and a market loss of nearly $7 trillion, the White House and Congress still don't get it. (p. 63)

No commentary needed: Whoever said crime doesn't pay obviously never ran a big corporation. (p. 64)

Bargain hunting: Is General Electric (GE) stock a bargain? It looks like one to us. (p. 68) [note: GE was selling for around $28/share at the time. It is now selling for $13.77/share. I liked it at $14.66/share and look forward to averaging down.]

Nuff' said: Is Our Financial System Broken? (p. 79)

What's the lesson? Just this: the more things change, the more they stay the same. I will leave you with some reassuring words from experienced investor Peter Lynch, circa 2002 [warning: PDF file]:

RUKEYSER: If you could give one sentence of advice to scared investors right now what would it be?

LYNCH: I think you ought to see some kids. You know, hire an eight-year-old. Hire a six-year old. Just watch them. They don't know who Alan Greenspan is. They don't know about the shape of the curve. They're optimistic about the future. We'll be fine for the next 30 or 40 years.

When I heard Mr. Lynch on the Louis Rukeyser show in 2002, I remember thinking, "He gets it." I coach youth basketball to get away from the vicissitudes of my legal practice and investing. There's something about seeing a bunch of happy, healthy kids coming together as a team that inspires faith in the human race. This year, I'm coaching 4th graders at the Campbell Community Center. My favorite current NBA player is the San Antonio Spurs' Tim Duncan. Yet, in some sort of cruel cosmic joke, my assigned team this year is the Spurs' nemesis, the Lakers. Fittingly, our team uniforms consist of hideously bright yellow t-shirts. Oh, well. Things on the outside may look bad right now, but deep down, our future is bright, we have plenty of land, a new president, and peace within our shores. I don't know when we'll get a market recovery, but just like post-September 2002, it'll be here before we know it.

Disclosure: I own shares of GE and Intel.

Thursday, November 13, 2008

General Electric at 12 Year Low

General Electric (GE) stock hasn't been this low since July 1, 1996. GE stock went as low as 14.58 per share today.

Yesterday, the stock tanked because the federal government suddenly reversed course and said it would not be buying bad debts. GE issues debt and also owns various financial subsidiaries, including insurance companies. Absent a government guarantee, various pieces of GE's financial portfolio would be less attractive to buyers. However, GE immediately issued a press release noting that the Federal Deposit Insurance Corporation approved GE Capital Corp. to participate in the Temporary Liquidity Guarantee Program--meaning up to $139 billion in short and long-term debt is going to be guaranteed by the federal government. (See AP article.) I guess when one door closes, another opens.

Today, GE's stock tanked because of rumors that GE was cutting its dividend, which stands at a hefty 7%. GE denied the rumors, but its stock fell anyway.

I am a major buyer at these levels. I picked up three thousand shares yesterday and just bought another thousand shares this morning at around 15.24 per share. My average buy price is around 16.25 per share.

Update on November 13, 2008: I sold my 4000 shares of GE at 16.74 today. Had I waited just five more minutes, I could have sold my shares at 16.90, meaning I would have made another $600+. That's fine--I'm not greedy. GE stock closed today at 16.86. It will probably go up more tomorrow, but I had too much invested to sleep comfortably if I held my shares overnight.

If you go back and look at my "Stocks Update" posts, you can view my short-term trading record. I also sold the GOOG and AMAT shares I bought yesterday.

The information on this site is provided for discussion purposes only and does not constitute investing recommendations. Under no circumstances does this information represent a recommendation to buy or sell securities or make any kind of an investment. You are responsible for your own due diligence.

Friday, July 25, 2008

General Electric (GE)

General Electric (GE) is known as a perennial blue chip. But it is also a finance company--see Bloomberg:

http://www.bloomberg.com/apps/news?pid=20601087&sid=axyID3B8K5bU&refer=home

GE holds about $5.3 billion in residential mortgage-backed securities as of June 30, down from $5.8 billion at the end of the first quarter.

GE also reduced its commercial mortgage-backed securities to $2.7 billion, down from $2.8 billion held as of March 31. The company also said it reduced its exposure to subprime credit in its residential mortgage-backed securities to $1.7 billion from $1.8 billion in the first quarter.

It's impossible to gauge the true value of underlying assets because almost all major companies dabbled in complex financial instruments--this is one reason markets are so volatile.

One tip: if you're driving to Mexico from California with a rental car, consider buying GE insurance. Your California insurance does not typically cover liability in Mexico:

http://www.gemexicoautoins.com/

http://www.gemexicoautoins.com/WhyMexIns.html

As you can see, even with the bad loans, GE has plenty of great products.