Can the stock of General Electric (GE) bottom? You have to admit that it stubbornly clings to the $14 level after a dip down to $12 and there's actual room for optimism.
What makes me say that when the biggest bears seem to be doubling down on their bearishness saying lots of things about how there will need to be more guidedowns and number trims?
Let's go down the business lines.
First we have to start with aerospace. One thing is certain throughout this ignominious era: GE engines are still regaled as being excellent. I keep waiting to hear someone say something to me, some bear, that GE's aviation business was damaged during the Immelt era. No one will say it, not with a $200 billion backlog. Yep, business is strong like all of aerospace. Remember GE built America's first jet engine and while Pratt & Whitney, a division of United Technologies has the Geared Turbofan engine, which is taking some share, GE's got a fantastic installed base to service and it powers two out of every three departures. There are a lot of companies that would salivate for GE aviation.
GE CEO John Flannery came from the health care end of the company where he turned it from a loser to a winner, something that people seem to forget when they talk about him periodically being overwhelmed by the job. Who wouldn't be given the opaque horrendous hand he was dealt by his predecessor. No one's quite sure what each piece of the GE puzzle is worth, but the Wall Street Journal did report that last month Danaher (DHI) , a very respected company with a stock that my charitable trust owns, tried to buy the life sciences part of the company for $20 billion but there are now no ongoing talks.
This story, if true, and I have no reason to believe it isn't, changes the equation very much in favor of GE because it shows, once again that a division may be worth more than people think. Danaher is the best buyer in the sector so that could have been an opening bid. If GE were really in trouble then it would have drilled the bid or at least negotiated something. I regarded this story as undercovered and very bullish for GE.
We know that GE's debating a spinoff or an IPO of its transportation business, the best locomotive company in the world. We know from every single railroad company in this country that there's not a lot of demand for locomotives. But GE last quarter said it has an $18 billion backlog which is enough for a spin off or an offering.
And, now the piece de resistance, why I am even willing to entertain the idea of a bottom here: Baker Hughes, a GE company (BHGE) . I know that oil's over-heated here but the equation has changed. The Saudis and the Russians are in control here. Putin needs oil higher and the Saudis want oil higher so they can do the Aramco deal, a trillion dollar offering. That's going to put a floor under oil and make it so that some company will be able to raise money to buy these assets.
Until oil spiked I thought that, once again, GE would be buying high and selling low and selling desperately. John Flannery now has breathing room. It's a huge break.
That's very important because GE power, despite its $98 billion backlog is in real trouble. There's just not nearly enough demand for their natural gas power plants going forward. The Alstom construction portion, the last acquisition of Immelt's and one that Flannery checked off on, is simply unacceptably bad and is a chief reason why the bears are sticking by their guns.
But with the price of oil up-albeit off today -- and natural gas prices through the floor, hope springs eternal.
Look, I get what the bears have to say. But the bears need to shift their negativity because GE near the end of Immelt's tenure ended up making a huge bet on oil and energy right at the top. Geopolitics is now giving Flannery a huge break. If he takes it, I think the company won't have to cut the dividend again and the stock has bottomed. If he doesn't? Frankly that's inconceivable, and inconceivable was the province of his predecessor, not himself.